Editor’s note: The Oct. 19 story below about lawsuits involving developer Arthur Falcone did not note that Tom Derington, his accuser in a recent lawsuit, was found guilty of bank fraud in federal court in Texas in 1999. Derington served 11 months in prison, five years on supervised release and was ordered to pay $48,565 in restitution.
Further, Derington, also known as Tommy Claude Derington, was wanted in Travis County, Texas on a state charge of harrassment that involved an alleged death threat he made against his son-in-law. A police affidavit filed in August described Derington as having an “extensive criminal history with multiple arrests and convictions, including aggravated assault causing serious bodily injury, delivery of controlled substance and impersonating a public servant, among other charges.”
The story also reported that in June 2014 a civil jury assessed $2 million in court costs and attorney fees against Falcone and his brother in a fraud lawsuit stemming from their purchase nine years earlier of Heritage Manor, a Boca Raton cemetery. A judge later reduced those fees to $900,000.
Falcone could not be reached for comment before the story ran. His spokespersons have since called Derington’s complaint “meritless.”
Derington sued Falcone in federal court in September, but soon withdrew the lawsuit only to refile it later in state court. Derington told the Miami Herald he withdrew the suit because a settlement was in the works. Falcone’s spokesperson said that statement is “completely false.”
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.
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 and refiled in state court earlier this month, Derington claimed he was fired after he objected to, among other things, demands that he falsely promise subcontractors work on the project in exchange for their campaign contributions to local candidates.
Derington was convicted of bank fraud in 1999 and spent nearly a year in federal prison.
Specifically, Derington alleged that 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 federal suit because a settlement was in the works. A spokesman for Falcone later called that assertion “completely false.”
A Falcone spokesman called Derington’s complaint “meritless,” stating that Derington “is not and was never an employee of any company tied to Falcone.”
In a written statement, Miami World Center spokesman Aaron 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 fraudulent 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 publicly 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 fraudulent transfer claims against the Falcones individually were later dropped. Other counts continue alleging the fraudulent transfer of funds against TEP Holdings, of which Arthur Falcone is chairman and chief executive officer. 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. The case was later settled.
In June 2014, a jury concluded that Falcone and his brother committed civil theft when they purchased the 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 allegedly 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.
The judge later overturned the jury’s finding of civil theft against the Falcones because the jury awarded no damages relating to the sale of the business and land. The plaintiffs are appealing.
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. A judge later reduced the award to $900,000. Under Florida law, the amount automatically tripled because the jurors found “clear and convincing evidence” that the Falcones acted with criminal intent to obtain the plaintiffs’ business and land, 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.”