(CN) - Investors claim in a class action in Orange County, Calif., Superior Court that Argus Realty Investors and nearly two dozen co-conspirators bilked them for $6.25 million in a scam involving development of two office buildings in Texas.
Lead plaintiff Alice Gee, two other people and 24 investment trusts claim Argus representatives approached them and induced them to invest in an office complex on the busy Dallas-Fort Worth freeway.
"The transaction was nothing more than a real estate scam put together by the defendants to line their own pockets," the complaint states.
It continues: "The defendants arranged the acquisition of the property at a price of $13,821,000 which amount included an undisclosed 'markup' real estate commission paid to an affiliate. The defendants then, through a series of transactions and leveraging, sold securities in the form of tenant-in-common (TIC) interests and separate limited partnership interests to plaintiffs at the over-promoted equity-plus-debt raise of $16,600,000.
"Defendants represented they had acquired over $500 million of commercial real estate; had more than 5 million square feet under management and offered investors 'the opportunity to participate in the ownership of institutional grade commercial real estate without the burden of individual property management' through its 'tenants-in common, direct participation, private exchange programs and real estate investment funds,'" according to the 73-page complaint.
It continues: "Defendants misrepresented the transaction and the securities offered and sold, including breaching fiduciary duties and failure to disclose the actual loads which would have made the securities a less desirable option than simply paying the capital gains tax.
"Because the securities and TIC interests in the property were not represented, as well as defendant's mismanagement, the property is near foreclosure which will result in the loss of the $6.25 million invested."
The plaintiffs want their $6.25 million back, and punitive damages for breach of fiduciary duty of real estate broker, legal malpractice, breach of fiduciary duty of attorney, constructive fraud, intentional misrepresentation, fraud by concealment, conversion, and unfair business practices.
They are represented by Kenneth J. Catanzarite of Anaheim.
Read the Top 8
Sign up for the Top 8, a roundup of the day's top stories delivered directly to your inbox Monday through Friday.