Two Chicago Real Estate Executives Indicted On Federal Fraud Charges Involving City Tif Notes And Bank Loans
CHICAGO — Two executives of a prominent Chicago real estate development company were indicted today on federal fraud charges alleging that they lied about and concealed unpaid property taxes, the double-pledging of public financing notes issued by the City of Chicago, and the company’s default on those notes so they could secure credit extensions and payments from the city at a time when they knew their firm was having serious financial difficulties. The defendants, LAURANCE H. FREED, and CAROLINE WALTERS, are, respectively, the president and vice president/treasurer of Joseph Freed and Associates LLC (JFA), best known for its role in the development of Block 37 in Chicago’s Loop.
The charges involve, in part, two Tax Increment Financing (TIF) notes that the City of Chicago agreed to issue in November 2002 to finance redevelopment of the former Goldblatt’s department store in the 4700 block of North Broadway in the city’s Uptown neighborhood. Freed was manager of a limited liability company, formed by JFA, called Uptown Goldblatts Venture LLC, which received a $4.3 million TIF redevelopment area note and a $2.4 million TIF project note from the city to help finance the project.
Freed, 51, of Chicago, and Walters, 53, of Palatine, were each charged with seven counts of bank fraud, one count of mail fraud, and five counts of making false statements to banks in a 14-count indictment returned today by a federal grand jury. The indictment also seeks forfeiture of $2,995,295 in alleged fraud proceeds from both defendants, who will be arraigned at a later date in U.S. District Court.
The indictment alleges three victims: the City of Chicago, Cole Taylor Bank, and a consortium of banks consisting of Bank of America (as successor to the former LaSalle Bank National Association), Associated Bank, Northern Trust, and Wachovia Bank.
According to the indictment, between March 2008 and February 2011 ― when JFA was in the midst of a severe liquidity crisis that jeopardized its ability to pay operating expenses and Freed and Walters knew the possibility that JFA’s inability to make required payments threatened the company’s future ― both defendants made false statements to the city and the banks to obtain funds. Freed and Walters allegedly made false statements:
- to the bank consortium to prevent default on a $105 million line of credit and to obtain a loan modification that would have provided JFA with at least $10 million in additional funds;
- to Cole Taylor Bank regarding the defendants’ intent to persuade the bank consortium to release its claim on the TIF notes as collateral; and
- to the City of Chicago to obtain nearly $1.75 million in payments from the TIF notes, knowing that the bank consortium and Cole Taylor were entitled to those payments.
As background, the indictment details various financial agreements involving JFA and its related entities, including:
- Uptown Goldblatts’ November 2002 TIF agreement with the city contained several conditions guaranteeing that Uptown Goldblatts would not default on its obligations, and, if the conditions were violated, the city would not be obligated to make TIF payments. The city began paying annual principal and interest on the notes after receiving an annual sworn statement from JFA certifying that it was in compliance with the conditions;
- Also in November 2002, Freed, on behalf of Uptown Goldblatts, entered into an agreement with Cole Taylor Bank for a $15 million loan in exchange for Uptown Goldblatts’ assignment to the bank of its rights in the TIF project note. Uptown Goldblatts would receive the annual proceeds from the note so long as it was not in default to the bank, but if it was in default, the bank would be entitled to the proceeds. The loan agreement also forbid Uptown Goldblatts from pledging the TIF note as collateral for any other loan and specified that doing so would constitute default to Cole Taylor Bank. The loan amount was later reduced from $15 million to $9 million; and
- In May 2006, a JFA associated entity, DDL LLC and Freed Illinois Holdings LLC, entered into agreements with the bank consortium, now led by Bank of America, for a revolving line of credit up to $150 million. In exchange, Freed’s entities pledged properties known as Evanston Plaza and West Town Center as collateral, and Freed personally guaranteed the loan for up to $50 million. In November 2007, Uptown Goldblatts entered into a security agreement with the bank consortium, pledging both TIF notes and their proceeds as collateral for the line of credit. Uptown Goldblatts warranted that the notes were free of any other outside interests, despite knowing that the project note had been previously pledged to Cole Taylor. The security agreement, signed by Freed, further provided that Uptown Goldblatts would direct all payments from the TIF notes to a Bank of America lockbox.
Freed and Walters allegedly made false statements to the bank consortium and Cole Taylor Bank about the collateral, as well as to the city about default and misappropriation of the TIF funds. These included concealing from the bank consortium Uptown Goldblatts’ prior pledge of the project note to Cole Taylor Bank, and making false statements and omissions to the consortium while trying to obtain a loan modification of at least $10 million and to prevent default on a $105 million line of credit. Between December 2008 and July 2009, Freed and Walters made four presentations to the bank consortium, allegedly knowing they contained multiple false statements and that Cole Taylor Bank had a superior interest in the TIF project note. Both defendants also made false statements about the Evanston Plaza and West Town Center developments, including concealing that JFA owed unpaid property taxes in April 2009 of at least $1.325 million on Evanston Plaza and at least $590,000 on West Town Center, the indictment alleges.
In December 2008, 2009, and 2010, Freed signed allegedly false affidavits to obtain TIF payments from the city, knowing instead that the bank consortium and Cole Taylor Bank were entitled to the payments. The indictment alleges he also falsely swore that no default condition existed, despite knowing that the double pledge of the project note as collateral to Cole Taylor Bank and the bank consortium had triggered Uptown Goldblatts’ default to the city. Further, Freed and Walters allegedly took steps to ensure that the TIF payments would be delivered directly to JFA and bypass the lockbox to prevent Bank of America from keeping the payments.
Each count of the indictment carries a maximum penalty of 30 years in prison and a $1 million fine, and restitution is mandatory. If convicted, the Court must impose a reasonable sentence under federal statutes and the advisory United States Sentencing Guidelines.
The indictment was announced by Zachary T. Fardon, United States Attorney for the Northern District of Illinois; Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation; and Joseph Ferguson, Inspector General for the City of Chicago.
The government is being represented by Assistant U.S. Attorney Renato Mariotti.
An indictment contains merely charges and is not evidence of guilt. The defendants are presumed innocent and are entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.