Fort Lauderdale attorneys won a rare federal civil racketeering verdict against two property managers they claimed defrauded German investors of about $9 million.
A jury awarded $17.5 million in damages against Dale Wood and Gunter Gies on Feb. 17. The pair worked for limited partnerships set up to pool money from 1,800 Germans and invest it in U.S. real estate.
When the market crashed, HPC US Funds had to assume ownership positions on many of the properties because the borrowers defaulted, said HPC attorney Paul Lopez of Tripp Scott in Fort Lauderdale. The funds needed to hire someone in the U.S. to manage the properties day-to-day.
“Dale Wood was the person that my clients felt was competent, savvy, trustworthy, someone they essentially could entrust the portfolio to,” Lopez said. Gies was brought on as a bookkeeper.
Unbeknownst to HPC, Wood and Gies sold off properties and pocketed the proceeds for about 3½ years, Lopez said. The pair sent monthly status reports to Germany saying some properties were being marketed vigorously when in fact they had already sold.
They set up dozens of bank accounts that appeared to be in HPC’s name, Lopez said.
“They would take funds from a sale, and then they would just simply move the money out among the accounts so it was very difficult to trace,” he said.
HPC did not start uncovering evidence of fraud by the Fort Lauderdale property managers until summer 2013. The limited partnerships moved quickly to hire attorneys and received an August 2013 restraining order that was quickly converted to a preliminary injunction against the defendants.
In November 2013, Wood sold another property and pocketed the money, Lopez said. Wood and his New Hampshire attorney were found in contempt of court for the post-injunction sale.
The racketeering case against Wood and Gies proceeded to trial Feb. 8 before U.S. Magistrate Judge James M. Hopkins. HPC argued Wood and Gies violated federal and state civil Racketeer Influenced and Corrupt Organizations statutes through wire fraud and mail fraud.
The jury found Wood liable for $10 million in damages for conversion, $9 million for fraud and $2.5 million for breach of fiduciary duty. Gies was found liable for $500,000 for fraud.
Wood and Gies also were found jointly and severally liable for $2.5 million for racketeering under RICO statutes, which will be tripled to $7.5 million.
The judgment should amount to $10 million from Wood and $7.5 million from Gies, as well as attorney fees and costs that amount to about $1 million, Lopez said. Because the damages relate to the same loss and the judgment cannot be duplicative, the judge typically awards the highest verdict amount for each defendant.
“We are not aware of any other civil cases that have been brought under the federal civil RICO statute that have gotten a verdict” in the Southern District of Florida, Lopez said.
Civil RICO verdicts are rare because the illegal activity has to have a broad scope and transactions must be proven to affect interstate commerce, he said.
The jury only had to find proof that the defendants had committed two of the predicate acts of mail fraud or wire fraud to establish damages. The jury found proof of more than 30 predicate acts, or every single monthly status report and deed that HPC alleged constituted fraud.
“The jury essentially gave us everything we wanted,” Lopez said.
Plaintiffs counsel condensed thousands of documents into charts and summary evidence to help the jury understand “a very complicated story” involving a lot of transactions, Lopez said.
Wood, who represented himself, said he plans to appeal but declined to comment further.
Gies was represented by Eliot Lupkin and Sean Clayton of Eliot J. Lupkin & Associates in Fort Lauderdale. Lupkin did not respond to a request for comment by deadline.
Lopez was joined on the case by Tripp Scott partner Richard Petrovich and associate Megan Janes as well as B. George Walker of Weinstein Tippetts & Little in Houston and Salvatore Fasulo of Shubin & Bass in Miami.
Get the latest industry news and information from CRE-sources delivered right to your email inbox! And we promise…no more than one email each morning. Just follow the instructions below.
Get the latest industry news and information from CRE-sources delivered right to your email inbox! And we promise…no more than one email each morning.
And we promise…no more than one email each morning.