A Massachusetts investor is charging a New Hampshire firm for “luring” it into a multi-million-dollar Ponzi scheme in order to get a piece of the action.
In July, Homes Development Corp. of Burlington, Mass., filed suit in U.S. District Court in Concord against Edmund & Wheeler Inc., a Franconia company which specializes in 1031 exchanges, named after a section of the Internal Revenue Code that allows investors to defer capital gains on real estate as long as those gains are invested in a similar property.
Homes Development had used Edmund & Wheeler before and therefore trusted the company when it suggested that it put $5 million into “a venture with a lengthy history of stable profitability,” according to the suit.
Those properties were owned by Rock well TIC, a Utah company, and its tenant, an event venue operator called Noah Corp., promising a 7% return in rent, with a 2% annual increase for only $2,000 in fees.
The properties were located near Birmingham, Ala., and Overland Park, Kan.
But the suit charges that the values of the property were artificially inflated — the Birmingham project wasn’t even started yet — and that the rents paid were not from a successful commercial operation but from other investors. After some of that initial rent, both Rockwell and Noah filed for bankruptcy.
The Securities and Exchange Commission had made similar charges against individuals behind Rockwell and Noah in a civil fraud complaint filed in Utah at the end of last year.
But Home Development’s lawsuit is filed
against Edmund & Wheeler and Edward & Wheeler Exchange Services as well as four individuals who work with the companies: John D. Hamrick, Mary O’Toole, Timothy Burger and Chris Brown.
HDC alleges that EWI was not a disinterested broker but skimmed 3% to 6% off the top of the deal, an arrangement that they didn’t disclose to HDC. The suit also alleged that EWI defendants were “close businesses associates” of Bowser and Ashby.
“None of these accusations are accurate,” Hamrick told NH Business Review. “They purchased the real estate, and the owner and the tenant went bankrupt, and now they are trying to blame everybody else.”
He added, “They still own the real estate.
They just aren’t getting any rent.”
— BOB SANDERS
