By Francisco Alvarado, FloridaBulldog.org
Arthur Falcone, a Boca Raton-based developer behind a downtown Miami project at the center of illegal campaign contribution allegations, has blazed a trail of lawsuits accusing him of swindling business associates and creditors out of tens of millions of dollars during the height of the real estate market crash.
According to two complaints filed in Miami-Dade and Palm Beach circuit courts, as well as filings in Fort Lauderdale bankruptcy court, Falcone committed fraud in three separate real estate-related transactions involving a cemetery, a national development company that went bankrupt and a prominent real estate broker who helped him secure various properties for the 10-block condo, hotel and retail site in downtown known as Miami World Center.
Falcone did not respond to two messages left on his office voicemail and two email requests for comment. Miami World Center spokesman Aaron Gordon said he could not comment on the lawsuits because he did not represent Falcone in those deals.
In a fourth and most recent lawsuit filed Sept. 14 in Miami federal court, a construction and plans examiner named Tom Derington sued three companies tied to Falcone and a business partner developing Miami World Center for wrongful termination. In the complaint, which was withdrawn earlier this month, Derington claimed he was fired after he objected to, among other malfeasance, demands that he falsely promised subcontractors work on the project in exchange for their campaign contributions to local candidates.
Specifically, Derington alleged an executive for Square Edge, a construction company managing the Miami World Center project, instructed him to raise money for the re-election campaigns of Miami-Dade Mayor Carlos Gimenez and County Commissioner Audrey Edmonson, as well as the campaign of Teresa Sarnoff, who last year lost a bid for the Miami City Commission seat vacated by her husband Marc Sarnoff.
“Square Edge provided Plaintiff with a list of names to demand contributions from, sometimes under the false pretense that the proposed professional or subcontractor would get work on the Paramount Ft. Lauderdale project or Miami World Center project, which the Defendants then did not deliver upon,” read the lawsuit by Derington, who said he was fired over his “numerous objections” to improper business practices.
Derington told the Miami Herald last week he withdrew his suit because a settlement was in the works.
In a written statement, Gordon denied any wrongdoing by the Miami World Center developers: “Their fundraising efforts have always been above board and in compliance with the law, which ultimately led to this lawsuit being withdrawn.”
Falcone, along with his brothers Edward and Robert, have been major real estate players in South Florida since the mid-1980s. In 1989, Falcone established Transeastern Homes, a firm that specialized in buying distressed homes in foreclosure brought on by the national recession. The company grew into one of the largest private homebuilders in the U.S. and by 2005, Falcone and his brothers were looking to cash out.
In August of that year, Transeastern merged with Hollywood-based Technical Olympic USA, or TOUSA, another national builder, in a deal that gave Arthur and Edward Falcone 50 percent ownership of the new company. TOUSA paid $857 million to acquire Transeastern’s assets and operations.
However, the joint venture floundered within a year. In November 2006, Falcone hit TOUSA with a notice of default after the company failed to pay him tens of millions of dollars still owed on the deal, according to a 2010 lawsuit filed by TOUSA’s creditors against Falcone, his brother and several entities they controlled.
$50 million fraudlent transfer?
The complaint alleged the Falcones induced a fraudulent transfer of more than $50 million from TOUSA, which went bankrupt by 2008, as part of a settlement releasing the brothers from their ownership stake and any liabilities arising from the company’s implosion as a result of the housing crash.
“The Defendants were intimately familiar with the crashing Florida homebuilding market, were well aware of the financial distress suffered by the Transeastern JV, were familiar with TOUSA’s operations and its various entities, and were privy to internal and publically available information reflecting the severity of the housing crisis and its impact on the Debtors’ businesses,” the lawsuit alleges. “Upon information and belief, the Defendants received the value of the Fraudulent Transfers, lacking good faith, and with knowledge of their avoidability.”
At the time, Falcone issued a press statement that dismissed the lawsuit as meritless. “Just because in hindsight TOUSA’s creditors think they overpaid, it doesn’t mean they can now go to the courts and demand their money back,” Falcone wrote. “Imagine if you bought your home a few years ago for $300,000 and now it’s worth $150,000. You can’t just go back to the seller and demand your money back. That’s the market.”
The case remains pending.
The same year TOUSA went bankrupt, Miami real estate broker Edie Laquer sued Falcone alleging he squeezed her out of a promised 10 percent ownership stake in Miami World Center without compensating her. Laquer also brokered the deals for the first seven properties used to assemble the site. In April of last year, the 3rd District Court of Appeal reversed the trial court’s decision dismissing Laquer’s complaint. Her lawyers successfully argued that even though the properties went through foreclosure, she should have remained in the Falcone partnership that purchased the parcels from the banks.
In June 2014, a jury concluded that Falcone and his brother committed civil theft when they purchased Boca Raton cemetery Heritage Manor from a pair of widows for $6.1 million nine years earlier. The two women sued the Falcones after finding out that their then-attorney, Michael Masanoff, received an under-the-table payment of $100,000 from the brothers. According to the widows’ trial lawyers, the cemetery was actually worth $40 million in 2005 when the deal closed.
Jurors awarded only $2 million in court costs and attorney fees to the adult children of the plaintiffs Elishka and Kathleen Michaels, who died during the drawn-out legal battle. However, under Florida law, the amount automatically tripled to $6 million because the jurors found “clear and convincing evidence” that the Falcones acted with criminal intent, according to the jury form.
During the trial, Masanoff — who was disbarred and is now a real estate developer — testified that the Falcones encouraged him to breach his fiduciary duty to the widows, in addition to concealing the $100,000 payoff. In court motions and at trial, Falcone attorney William Cornwell dismissed Masanoff’s testimony by citing a confidential settlement he reached with the Michaels’ family members.
The Falcones’ appeal of the verdict is pending. In a brief phone interview, Cornwell told Florida Bulldog that the jury reached the wrong conclusion. “We believe the verdict will be overturned,” he said. “And we are vigorously pursuing an appeal.”