According to a civil lawsuit filed on February 9, commercial titan Marcus & Millichap, its own agents, two of their associates and several subsidiaries of Marcus & Millichap and the associates perpetrated a massive real estate fraud scam against more than a dozen victims beginning in 2004 and continuing until 2008, when the scheme collapsed. Collectively, they are accused of causing losses that exceed $50 million involving 22 properties.
The Marcus & Millichap defendants are the Marcus & Millichap Company; Marcus & Millichap Real Estate Investment Services, Inc.; Marcus & Millichap Real Estate Investment Brokerage Company; Sovereign Investment Company; Sovereign Scranton, LLC; Sovereign CC, LLC; and Sovereign JF, LLC. Their defendant agents are Glen Kunofksy, Marcus Muirhead, Alexander Mickle, Sean Perkin, Donald Emas, Andrew Lesher, Stewart Weston, Brice Head, Daizy Gomez and Bret King.
The associate-defendants are Paul A. Morabito and Jack Waelti. Their “alter ego” shell companies are too numerous to list, but include Eureka Petroleum Inc.; Tibarom LLC; Tibarom NY LLC; Tibarom PA LLC (Morbito’s firms) and QSR Group LLC; QSR Group One LLC; and QSR Group II LLC, aka QSR Group Two LLC.
In a nutshell, attorneys for the victims-plaintiffs claim that the various defendants set up a sophisticated “real estate scam” that began with contacting the owners of Jiffy Lube and Church’s Chicken franchises around the country and offering to purchase both the franchises and the properties. The sold properties were put in the name of shell companies controlled by Morabito or Waelti, which were then “flipped” into Marcus & Millichap subsidiaries such as Sovereign Scranton. Dummy sale/leaseback agreements were then written that inflated both the value of the properties at sale, as well as the leasebacks.
The properties were then listed by Marcus & Millichap agents and marketed to 1031 investors (note: in a 1031 exchange, previously called a Starker exchange, investors may defer capital gains taxes by purchasing new investment property within 180 days of selling the previous property). Critical to the lawsuit was that the complex and ongoing relationships between the various defendants was not disclosed to the victims; in fact, the victims were repeatedly told by their own Marcus & Millichap agents that the corresponding Marcus & Millichap agents were experts in the lease agreements and that the investments were safe.
Attorneys for the plaintiffs are accusing the defendants of violating the Racketeer Influenced and Corrupt Organizations Act (“RICO”), negligent misrepresentation, fraudulent concealment, unjust enrichment and imposition of a constructive trust, money had and received, and violation of two sections of California’s Business and Professions Code.
PGP Valuation, Inc., a nationwide appraisal firm specializing in commercial and industrial properties, was also named in the lawsuit. In a future article, readers will learn the critical role appraisals play in real estate fraud.
Note: this article is also published on Examiner.com