IN THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF FLORIDA JACKSONVILLE DIVISION ) GORDON LAWRIE, MARGARET ) LAWRIE, CHARLES MCKINLAY, ALAN ) SIEGEL, KIMBERLY SIEGEL, STEPHEN ) FRIEZE, ELIZABETH FRIEZE, BARRY ) SOBEL, NAOMI BERGER, ANDREW ) BILLINGTON CHARLOTTE ) BILLINGTON, JOHNNY MILLER, JAMES ) Case No: 3:09-CV-00446-TJC-HTS C. RAMEY, HEATHER PETTS, PHILIP ) BUTTON, JOHN MIGYANKA, FLORA ) MIGYANKA, CHRISTOPHER DELANEY, ) and PAUL TIPTON, individually and on ) behalf of all others similarly situated, ) ) Plaintiffs, ) ) v. ) ) THE GINN COMPANIES, LLC, GINN ) DEVELOPMENT COMPANY, LLC, GINN ) REAL ESTATE COMPANY, LLC, GINN ) FINANCIAL SERVICES, LLC, GINN ) TITLE SERVICES, LLC, ESI LIVING, ) LLC, LUBERT-ADLER PARTNERS, L.P., ) FIFTH THIRD BANCORP, FIFTH THIRD ) BANK (MICHIGAN), SUNTRUST ) MORTGGE, INC., and WACHOVIA ) BANK, N.A. ) Defendants. FIRST AMENDED CLASS ACTION COMPLAINT AND DEMAND FOR JURY TRIAL TABLE OF CONTENTS I. INTRODUCTION..........................................................................................................1 II. JURISDICTION AND VENUE......................................................................................5 III. PARTIES........................................................................................................................6 A. Plaintiffs..............................................................................................................6 B. Defendants..........................................................................................................8 i) Ginn/Lubert-Adler Defendants.................................................................8 C. Lender Defendants............................................................................................10 i) Fifth Third.............................................................................................10 ii) SunTrust................................................................................................11 iii) Wachovia...............................................................................................11 iv) Ginn Financial.......................................................................................11 IV. FACTUAL ALLEGATIONS........................................................................................12 A. The Scheme.......................................................................................................12 V. FOSTERING FRENZIED DEMAND...........................................................................16 VI. MANIPULATING PRICES IN GINN DEVELOPMENTS...........................................24 VII. TARGETING FOREIGN NATIONALS.......................................................................38 VIII. FURNISHING AND ACCEPTING KICKBACKS.......................................................42 IX. REAPING PROFITS AND CAUSING LOSSES..........................................................44 X. DEFENDANTS CONDUCT.........................................................................................50 A. Fifth Third and its Predecessors-in-Interest Actively and Knowingly Participated in Various Aspects of the Scheme................................50 B. Sun Trust Mortgage Actively and Knowingly Participated in Aspects of the Scheme...................................................................................62 C. Wachovia Actively and knowingly Participated in Various Aspects ofthe Scheme....................................................................................................75 D. The Ginn Defendants Actively and Knowingly Participated in Various Aspects of the Scheme......................................................................79 E. Lubert-Adler Actively and Knowingly Participated in Various Aspects of the Scheme.......................................................................................84 F. ESI Living Actively and Knowingly Participated in Various Aspects of the Scheme.......................................................................................88 XI. THE PLAINTIFFS’ PURCHASES...............................................................................94 A. Gordon Lawrie, Margaret Lawrie and Charles McKinlay...................................94 B. Alan Siegel and Kimberly Siegel.......................................................................97 C. Johnny Miller....................................................................................................98 D. Stephen Frieze and Elizabeth Frieze..................................................................99 E. BarrySobeland Naomi Berger........................................................................101 F. Andrew Billington and Charlotte Billington....................................................103 G. James C. Ramey..............................................................................................107 H. John Migyanka, Flora Migyanka and Christoper Delaney................................108 I. Heather Petts and Philip Button.......................................................................109 J. PaulTipton......................................................................................................114 XII. DEFENDANTS’ CONDUCT HAS INJURED PLAINTIFFS AND THE CLASS.......115 XIII. RICO ALLEGATIONS..............................................................................................115 A. Enterprise Allegations.....................................................................................115 (1) The Ginn Company Enterprise.............................................................115 B. Alternative Enterprise Allegations...................................................................117 C. Predicate Acts Mail and Wire Fraud: 18 U.S.C. § 1341 AND 8 U.S.C. § 1343119 D. Pattern of Racketeering Activity......................................................................121 E. Defendants’ Conduct Caused Direct Injury to Plaintiffs...................................122 XIV. CLASS ACTION ALLEGATIONS............................................................................122 3 XV. COUNT I - Violation of 18 U.S.C. § 1962(c) –RICO (As to all Defendants)..............126 XVI. COUNT II - Violation of 18 U.S.C. § 1962(d) – RICO (As to all Defendants)............126 XVII. COUNT III -Violations of the Florida Deceptive and Unfair Trade Practices Act, Florida Statutes (“FDUTPA”) §§ 501.201 et seq. (As to all Defendants)..............127 XVIII. COUNT IV -Civil Conspiracy (As to all Defendants).................................................129 XIX. COUNT V -Negligent Supervision (As to the Lender Defendants)............................130 XX. COUNT VI -Unjust Enrichment (As to all Defendants).............................................132 XXI. PRAYER FOR RELIEF..............................................................................................133 XXII. DEMAND FOR TRIAL BY JURY.............................................................................134 4 I. INTRODUCTION 1. This is a proposed Class action to redress one of the largest real estate and mortgage frauds in recent history. This action is brought by Plaintiffs on behalf of themselves and those similarly situated, pursuant to Rule 23 of the Federal Rules of Civil Procedure, against Defendants The Ginn Companies, LLC, Ginn Development Company, LLC; Ginn Real Estate Company, LLC; Ginn Financial Services, LLC; Ginn Title Services, LLC; ESI Living, LLC; Lubert-Adler Partners, L.P.; Fifth Third Bancorp; Fifth Third Bank (Michigan); SunTrust Mortgage, Inc.; and Wachovia Bank, N.A., for violations of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961 et seq. (“RICO”), and the Florida Unfair and Deceptive Practices Act, Florida Statutes §§ 501.201 et seq., and Florida common law in connection with a complex and wide ranging scheme used by Defendants to market, sell and finance real estate in certain residential real estate developments through misrepresentations, fraud and violations of federal and state law. 2. At issue in this case is Defendants’ scheme to market, sell and finance real estate in residential communities developed by the Ginn and Lubert-Adler Defendants at prices that were fraudulently inflated through misrepresentations, manipulation, fraud, deceptions, omissions and unconscionable conduct, as described in detail below, in order to astronomically increase their profits at the expense of purchasers such as Plaintiffs and the other members of the Class. 3. Plaintiffs and other members of the Class bought real estate in communities developed by the Ginn Defendants and Lubert-Adler that were marketed pursuant to a common scheme. These communities included, without limitation: (a) Hammock Beach in Palm Coast, Florida; (b) Tesoro Preserve in Port St. Lucie, Florida; (c) Reunion Resort in Orlando, Florida; (d) Bella Collina in Montverde, Florida; (e) Yacht Harbor Village at Hammock Beach, in Palm Coast, Florida; (f) Conservatoryat Hammock Beach in Palm Coast, Florida; (g) Quail West in Naples, Florida; (h) Cobblestone Park in Blythewood, South Carolina; (i) The BriarRose in Hancock County, Georgia; (j) Laurelmor in Boone, North Carolina; (k) Burke Mountain in East Burke, Vermont; (l) Ginn Sur Mer, Bahamas; (m) MahoganyRun in the Virgin Islands; (n) Tesoro Club; (o) Tesoro Beach Club; (p) Admirals Cove Condominiums; (q) Hammock Beach Club Villas; (r) Hammock Beach Club; and (s) The Towers at Hammock Beach Club. 4. Defendants victimized and misled Plaintiffs and the Class as to the value of such propertythrough a scheme implemented by Defendants that involved every step of the real estate purchase process–from the introduction of the property at lavish “launches” and presales deceptively promoted with standardized marketing materials through the mails and wires, to the intentional manipulation of property values through misrepresentations, fraud, deception, omissions and unconscionable conduct, to the funding of mortgage loans for the properties, based upon materially false, artificially-inflated and purposefully manipulated appraisals. 2 Defendants developed this reprehensible scheme and moved their enterprise from one development to the next. 5. The scheme caused substantial harm to thousands. 6. As one builder stated during an interview with Plaintiffs’ counsel: Theybuilt the prices artificially high. They used fraudulent leasebacks. The price would include a provision for the builder to give a percentage of the money back to the buyer, right there at closing. But it was fake because the builder would not actually occupy the property. Ginn just enticed people to purchase at high prices by offering them a cash kickback at closing to completely cover their carrying costs. This made the selling price artificially high. It was fraud. This is how they raised the prices. I decided not to do it because I knew this house of cards was going to collapse. I had never seen anything this crazy. It was fraud. I’ve been building homes for a long time and I’ve never heard of anything like what these people were doing. They had insider trading going on to raise prices. They used shell companies to buy and flip properties. That’s how they jacked up the prices. They would sellto mysterymen. That’s how this thing collapsed. If you look at every community they did, it was always the same thing. In my opinion, the lot prices were all based on fraudulent appraisals. I believe that the banks knew exactly what was going on. 7. As early as 2005, even other Florida developers began to note that Ginn’s “success” was beyond ordinary and quite questionable. For example, one developer questioned Ginn’s sales projections with respect to a launch at Reunion, stating: It’s optimistic. They’ve done a brisk business, but it has been awhile since we’ve done business with them because their prices kept climbing. 3 Noelle C. Haner, Ginn’s Goal: Condo Sales of $1 Billion, Orlando Business Journal (May 20, 2005), available at: http://orlando.bizjournals.com/orlando/stories/2005/05/23/story1.html# (quoting Virginia Cowie, founder and owner of British Homes Group) (emphasis added). 8. Each and every member of the proposed Class was harmed by the conduct alleged herein. The scheme was designed to and succeeded at building on the inflated values derived from the improper appraisals, inappropriate comparables, false recording tactics, kickbacks and other improprieties used by Defendants. It was not necessary that every individual sale involved such elements in order for Ginn to obtain prices inflated well beyond where they would have been in the absence of the scheme, as appraisals downstream of the original tainted appraisals were tainted by the fraud. 9. The inflated sales prices for properties in the Ginn communities resulting from the conduct alleged herein tainted subsequent valuations, appraisals and sales prices, permitting Ginn to continuously obfuscate the true value of the properties, set prices at an artificially high level and otherwise create false appreciation in value and permitting SunTrust, Fifth Third, Wachovia and Ginn Financial to reap substantial short-term benefits from providing the appurtenant mortgage loans. 10. Each member of the Class fell victim to the Defendants’ scheme and purchased one or more Ginn properties with a value far below that represented by Defendants, thereby suffering substantial losses to their money or business, including monetary losses. In fact, the subject properties are actually worth as little as ten percent of their “appraised value”—a phenomenon that absolutely cannot be explained by mere “market downturn.” 11. As set forth below, each of the Defendants actively participated in and exercised controlover the conduct furthering the overall scheme for the common objective of fraudulently 4 and substantially increasing profits from the sales and financing of Ginn properties to the Class members at substantially and artificially inflated prices. 12. Plaintiffs seek redress for the losses to property that the Class (defined below) suffered as a result of Defendants’ illegal acts, and further seek declaratory and injunctive relief to prevent further losses. II. JURISDICTION AND VENUE 13. This Court has federal question jurisdiction over the subject matter of this action pursuant to 18 U.S.C. §§ 1961, 1962 and 1964; 28 U.S.C. §§ 1331, 1332 and 1367. 14. Diversity jurisdiction is also conferred over this Class action pursuant to the Class Action Fairness Act of 2005, 28 U.S.C. § 1332(d), providing for jurisdiction where, as here, the aggregated amount in controversy exceeds five million dollars ($5,000,000), exclusive of interest and costs and: (a) any member of a class of Plaintiffs is a citizen of a State different from any defendant; and/or (b) any member of a class of Plaintiffs is a citizen or subject of a foreign state. See 28 U.S.C. §§ 1332(d)(2) and (6). 15. This Court has supplemental jurisdiction over the state law claims asserted herein, pursuant to 28 U.S.C. § 1367(a). 16. This Court has personal jurisdiction over the Defendants pursuant to 18 U.S.C. §§ 1965 (b) and (d). 17. The activities of the Defendants and their co-conspirators as described herein have been within the flow of interstate commerce on a continuous and uninterrupted basis and have had a substantial effect on interstate commerce. 18. Venue is proper in this district pursuant to 28 U.S.C. § 1391(b) because a substantial part of the events or omissions giving rise to the Plaintiffs’ claims occurred in this 5 district and/or or a substantial part of property that is the subject of this action is situated in this district. III. PARTIES A. Plaintiffs 19. Plaintiffs Gordon Lawrie and Margaret Lawrie are British citizens residing in Winter Garden, Florida. The Lawries were victims of the illegal acts alleged herein and were injured as a result, suffering substantial losses to their money and property. 20. Plaintiff Charles McKinlay is a British citizen residing in Edinburgh, Scotland. McKinlay was a victim of the illegal acts alleged herein and was injured as a result, suffering substantial losses to his money and property. 21. Plaintiff Alan Siegel is a United States citizen residing in Orlando, Florida. Alan Siegel was a victim of the illegal acts alleged herein and was injured as a result, suffering substantial losses to his money and property. 22. Plaintiff Kimberly Siegel is a United States citizen residing in Orlando, Florida. Kimberly Siegel was a victim of the illegal acts alleged herein and was injured as a result, suffering substantial losses to her money and property. 23. Plaintiffs Stephen Frieze and Elizabeth Frieze are British citizens residing in Montverde, Florida. The Friezes were victims of the illegal acts alleged herein and were injured as a result, suffering substantial losses to their money and property. 24. Plaintiff Barry Sobel is a United States citizen residing in Boca Raton, Florida. Sobel was a victim of the illegal acts alleged herein and was injured as a result, suffering substantial losses to his money and property. 6