Marcus & Millichap Allegedly Creates Almost Perfect Fraud Scheme

February 18, 2009
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According to a civil suit filed on February 9, commercial real estate powerhouse Marcus & Millichap, its agents, two of their associates and several subsidiaries of the company executed a massive real estate fraud scheme against more than a dozen victims from 2004 until as recent as 2008. The company is accused of causing losses for 22 properties that exceed $50 million.

The Marcus & Millichap defendants are the Marcus & Millichap Company; Marcus & Millichap Real Estate Investment Services; 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 Kunofsky, Marcus Muirhead, Alexander Mickle, Sean Perkin, Donald Emas, Andrew Lesher, Stewart Weston, Brice Head, Daisy Gomez and Bret King.

The associate defendants are Paul A Morabito and Jack Waelti. The two had numerous “alter ego” shell companies but the more well known 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 summary, attorneys for the victims allege that various defendants set up a sophisticated “real estate scam” that began with contacting owners of Jiffy Lube and Church’s Chicken franchises around the country and offering to purchase both the franchise and the properties. The sold properties were put into the name of shell companies owned by Morabito or Waelti, which were 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 well as the leasebacks.

The properties were then listed by Marcus & Millichap agents and marketed to 1031 investors. In a 1031 exchange, also known as a Starker exchange, investors can defer capital gains taxes by purchasing new investment property within 180 days of selling the previous property.

The relationships between the various defendants were not disclosed to the victims and 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 all investments were safe.

The plaintiff’s attorneys 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.

Source: examiner.com