Vivian R. Hays; Sharon Billedeau; Brookvest LLC; CDC Rural LP; CDC-Glendale LP; Commercial One Corporation; DCRE Investments LLC; Robert P. Dreyer; Esperance LLC; Femrite Commercial Rentals LLC; Daniel Friedlander; Iron Crown LLP; Kyoungae Kim, as Trustee of the Kyoungae Kim Trust dated Dec. 16, 2002; Carolyn Kneese, as Trustee of the Carolyn Calvi
Published: Nov. 24, 2012 | Result Date: Nov. 5, 2012 | Filing Date: Jan. 1, 1900 |Case number: 3:10-cv-05336-JSW Settlement – $11,000,000
Facts
Land America Exchange Services, ("LES") served as a qualified intermediary ("QI"), taking possession of funds from real estate sales as part of a legal tax-deferral vehicle known as a 1031 Exchange. Section 1031 of the IRC allows property owners to defer capital gains taxes from real estate sales by using the sales proceeds to buy replacement properties. Proceeds from a property sale must be held by a QI in the period before replacement property is purchased, which can be up to six months. LES invested its clients' funds in auction rate securities, composed of student loans, which were considered to be a low-risk investment; however, when the market for ARS froze in February 2008, during the economic crisis, 41 percent of LES's assets were trapped - and the number rose to 80 percent by September 2008.
Plaintiffs alleged that after February 2008, LES ran a Ponzi scheme using new investor funds to close older 1031 Exchanges, which lost the new investors $191 million by the time the scheme collapsed on Nov. 26, 2008, when LES filed for bankruptcy. Plaintiffs also alleged that certain title companies related to LES aided LES in running a Ponzi scheme.
Settlement Discussions
The $11 million class settlement was conditioned on approval of a separate $36.8 million LES Bankruptcy-related settlement involving an E&O insurer, the trustees of two liquidation trusts, and the defendant title insurance companies. The LES bankruptcy settlement was approved in June 2012 and the $11 million class settlement was approved on Nov. 5, 2012.
Result
With the $11 million class settlement, the $36.8 million bankruptcy settlement, other recoveries in the LES bankruptcy, the claimants (LES Exchangers) will receive substantially 100 percent of the Exchange Funds they lost.
Other Information
FILING DATE: November 2010.
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