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BREAKING NEWS: JUDGE RULES THAT MASSIVE PONZI SCHEME LAWSUIT UNFOLDING AMONG LAKEWOOD AREA RESIDENTS CAN PROCEED



One partner named in a massive ponzi scheme lawsuit attempted to get dismissed from the lawsuit on the basis that he was "not involved." Ocean County Superior Court Judge James Den Uyl was not persuaded, and ruled that the civil lawsuit may proceed.


A number of ponzi schemes have recently come to light regarding Brooklyn and Lakewood community members.


One such scheme, which involves a Lakewood based company, and has affected investors from across New York, New Jersey, and Ohio, is unfolding in multiple massive lawsuits filed in New York and New Jersey.


Plaintiff TrueStone Iowa Partners, LLC filed a massive lawsuit in New Jersey Superior Court in Ocean County against Lakewood based companies Blue Care Homes, LLC, Blue Home Care Investments, LLC, Cornell Manor, LLC, BCH Operations, LLC, its owners, as well as Ridgeview Equities, Inc, and its associates, Shmuel Frenkel, Yechiel Frenkel, Aryeh Grunwald, Moshe Neiman, Isaac Labkowsky, Arina Labkowsky.


Shmuel Frenkel, Yechiel Frenkel, Aryeh Grunwald, Moshe Neiman, Isaac Labkowsky, Arina Labkowsky have settled out of court and are no longer defendants in the litigation.


According to the Complaint:


The Lakewood business investors approached the Members of TrueStone - which is based in Edison, New Jersey -  with an opportunity to become passive investors in a business owning and operating four skilled nursing facilities and two assisted living facilities in Iowa. Specifically, they represented that they had familiarity with the nursing home business and would operate the nursing homes in accordance with appropriate standards and customs.


They specifically represented that they invested eight million dollars of personal monies into this venture.


TrueStone relied upon the above representations and agreed to partner with the Lakewood investors.


In November 2022, TrueStone entered into an agreement with the Lakewood investors to partner in a purchase of the Blue Care home facilities in Iowa. Under this agreement, BC Investments has a 69.18% ownership interest, BCH has a 5.90% ownership interest, and TrueStone has a 24.92% ownership interest.


Under the agreement, the Lakewood investors would manage the facilities. This Agreement provides that they are “engaged in the business of providing management services to skilled nursing facilities, assisted living, and other types of senior housing facilities.” The Agreement sets forth their duties, including "to administer and manage Facilities in a commercially reasonable manner,” “shall ensure that the Facilities are operated…in compliance with all applicable federal and state laws, rules and regulations,” and “shall manage the financial affairs of Facilities in a fiscally prudent manner in accordance with industry standards…”


The Lakewood investors continued to represent to TrueStone as being competent in the business of providing management services to skilled nursing facilities, assisted living, and other types of senior housing facilities.


However, the representations relied upon by Truestone, were, unbeknownst to TrueStone, untrue.


The Lakewood investors mismanaged Blue Care’s finances for their own benefit and to the detriment of TrueStone.


On Jan. 23, 2023, the Lakewood investors admitted to the Iowa Department of Inspections and Appeals that they could no longer continue operating the facilities. A judge immediately placed the facilities in receivership.


The Lakewood investors breached their legal and fiduciary duties to their partners and to the residents of the Facilities.


This mismanagement of duties which they represented they were competent to perform caused TrueStone to lose its investment monies and any opportunity for gains on the investment, and also resulted in the placement of the Facilities into a receivership.


It is believed that the Lakewood investors funneled the monies received from TrueStone and for the management of the Facilities to other business and enterprises for personal uses.


Their mismanagement, actions and inactions have resulted in investigations opened by the Department of Labor and other governmental entities, has resulted in harm to patients within the Facilities, and has caused TrueStone significant financial damage.


TrueStone would not have sustained damage had the defendants performed their duties as they represented they could.


TrueStone is suing for minority oppression - Defendants have acted oppressively and unfairly toward TrueStone, as a minority Member of Blue Care, in violation of the New Jersey Revised Uniform Limited Liability Company Act and common law.


The suit also alleges breach of fiduciary duty, fraud, and breach of contract, breach of the duty of good faith and fair dealing, gross negligence, unjust enrichment.


The Complaint seeks judgment against defendants, jointly and severally, awarding compensatory damages, together with pre- and post-judgment interest, attorney’s fees, costs of suit, and any other relief this Court deems just.


The lawsuit was filed by Moorestown Attorney Jeffrey P. Resnick Esq.


As first reported here on FAA News, New York Attorney Edward Andrew Paltzik Esq., representing one of the partners, filed a Motion to Dismiss, arguing that the Complaint is "speculative and vague" in that Plaintiff alleges that "all of the Defendants" were complicit in supposed breaches of various duties and in an overarching fraud purportedly masterminded by the other partner, however, the Complaint’s purported factual allegations are almost completely lacking in dates, places, times, or particulars of any sort, and the causes of action that follow these allegations contain nothing other than rote recitation of the hornbook elements of these causes of action. Indeed, with the possible exception of the other partner, Plaintiff does not provide any coherent description of what the alleged wrongdoing was by any of the Defendants, nor how they committed any alleged wrongdoing. Nor does the Complaint set forth any specific statements purportedly made by Defendants.


Plaintiff claims that all of the representations were untrue and made with intent to deceive, however, critically, Plaintiff does not allege that this partner was personally a party to any contract with the Plaintiff, nor does Plaintiff identify the existence of any such contract. Furthermore, Plaintiff does not allege that this partner had any control over the Defendant limited liability companies or any control over the overall venture. As well, Plaintiff does not specify how or when this partner supposedly mismanaged the venture’s finances or used these finances for personal gain. In fact, Plaintiff does not even specify how or when the purported ringleader supposedly mismanaged the venture’s finances or used these finances for personal gain.


Judge Den Uyl was not persuaded, and, at oral arguments held on Friday afternoon, denied the motion to dismiss.


Judge Den Uyl cited the following case law:


When reviewing a complaint dismissed for failure to state a claim, our inquiry is limited to examining the legal sufficiency of the facts alleged on the face of the complaint. Rieder v. Dept. of Transp.


Thus, a reviewing court searches the complaint in depth and with liberality to ascertain whether the fundament of a cause of action may be gleaned even from an obscure statement of claim, opportunity being given to amend if necessary. Di Cristofaro v. Laurel Grove Memorial Park.


As such, if a generous reading of the allegations merely suggests a cause of action, the complaint will withstand the motion. Smith v. SBC Communs., Inc.


In this case so far, there are no facts before the Court, only allegations, and a generous reading of the allegations suggests a cause of action, therefore the complaint will withstand the motion to dismiss, concluded Judge Den Uyl.


This partner's main claim is that he had "no control over the Defendant limited liability companies or any control over the overall venture."


However, documents obtained by FAA News indicate that he has indeed signed that he does holds ownership in the nursing homes venture.


Additionally, multiple lawsuits filed in New York Supreme Court alleges similar fraudulent misrepresentations against these same individuals, indicating that they admitted that - working together - they funneled funds from investors for yet a separate scam they pulled in Brooklyn to their Iowa nursing homes scam.


The Brooklyn lawsuit was filed by Boruch Maines, Feivel Schwartz and Susan Hoffman, managing members of Ohio-based Five Star Equity Investments.


The lawsuit alleges that between April and May 2022, the Lakewood investors approached the three Ohio investors seeking their $8 million involvement in what they claimed was a “great opportunity” to develop property in Brooklyn.


Specifically, the Lakewood investors represented to the Ohio investors that they had recently closed on property in a great area of Brooklyn and they were looking for investors to help develop the property into a residential space where each apartment unit could be rented for upwards of $3000 a month and, eventually the building could be sold at a huge profit.


The Lakewood investors showed the Ohio investors a $17-million-dollar appraisal report.


The Lakewood investors further represented to the Ohio investors that the premises had 50,000 square feet of buildable space and said space could accommodate 80 to 100 residential rental units.


The Lakewood investors also represented the premises had received the last 30 year tax exemption granted for such properties by the state of New York. This valuable property tax exemption is known as a 421-A 30 year tax exemption.


This factor was one of the reasons the Ohio investors were excited about being involved in the development, as the Lakewood investors claimed that the tax exemption would increase the property and appraisal value by $5 million dollars.


The Ohio investors relied on this representation in making the decision to fund the development of the premises.


They were also fooled into believing the $17-million-dollar appraisal report was based on accurate facts and findings.


In order to further induce the Ohio investors to fund the development of the premises, the Lakewood investors represented to the investors that securing the valuable 421-a tax exemption, required them to prove that “footers” had already been poured at the premises. They further represented footers had in fact been poured and constructed at the premises.


Both the representation as to the footers and the 421-A exemption being secured were in fact completely false. A visual inspection of the site conducted subsequent to the investors funding the development confirmed that no such footers existed. Additionally, a search of the records of the City of New York reveals no 421-A tax exemption for the subject premises.


Additionally, the Ohio investors later found out the Property does not in fact have 50,000 square feet of buildable space, but only 40,000 square feet. The difference between having 50,000 square feet of buildable space and 40,000 square feet of buildable space is huge in that, the difference between these two numbers represents a profitable project and one that cannot be profitable.


The Lakewood investors knew the Property did not have 50,000 square feet of buildable space at the time they made this false representation. They knowingly made this false representation to convince the investors to buy into the Property.


Being unaware of the above at the time, the investors were excited about the opportunity to develop a building in what was purported to be a great area for development, Prospect Park, Brooklyn and, agreed to fund the entire $8 million raise required by the Lakewood investors - to buy into 75% of this opportunity.


At least $2 million of these funds were actually loans which the Ohio investors took as they did not have the full amount needed in cash. The Lakewood investors fiercely prodded them to take these loans, promising to pay all the interest.


At the time, the premises was owned by BD781 LLC. Each of the Lakewood investors are fifty percent owners of BD781.


In December 2022, the Ohio investors began pushing the Lakewood investors to see some activity in the purported construction. At that point the Lakewood investors represented “things are moving along” and “they are up to the mechanicals.” The Lakewood investors introduced Manies to Ari Glick who was, allegedly, the building project manager. Glick represented that the development of the building was undergoing an approval process by the City of New York and that building was starting “immediately.”


However, just one month later, in January 2023, the massive scandal came crashing down.


It happened after the Lakewood investors called the Ohio investors and stated that the property required a “cash call” because the property had insufficient funds to pay the mortgage and “they were a month behind and about to be two months behind.”


At this point, the Ohio investors became incredibly suspicious as they had already provided eight million dollars in funding up front. When they inquired as to where all the funds had gone, the Lakewood investors suggested they meet in person to discuss.


At a subsequently arranged in-person meeting, the Lakewood investors shared with the Ohio investors the fact that they had misappropriated the Ohio investor funds in order to secure interest in their nursing homes (which had just been seized by Iowa State officials).


As a result of revealing this shocking information, the Lakewood investors promised to assign their entire ownership in the property to the investors.


However, this promise was yet an additional fraudulent ponzi as just days prior, an individual purporting to be a member of BD781 LLC, sold the premises to his relative, who then purported to register YAG781 Corp as owner of the premises and to register a form for Water and Sewer filing with the City of New York Department of Environmental Protection.


Additionally, around the same time, Yoni Lefkowitz, purportedly signing as a member of BD781, filed a “Declaration of Restriction” in an effort to prevent the subject premises being mortgaged, encumbered transferred hypothecated or sold. (In other words, just days prior to the promise to hand over the property to the Ohio investors due to misappropriating their $8 million, "someone" - either of the partners - had just handed over this very same property to Lefkowitz!)


To date none of the $8 million have been repaid in principal nor interest. Additionally, despite the expiration of over one year there has been zero development, movement or progress of any kind at the subject premises.


The Lakewood investors knew all along that all of their representations were false.


The nine count Complaint seeks judgement for compensatory damages, in an amount not less than $8,090,000.00, plus pre and post judgement interest, at the highest rate permissible by law; as well as declaratory judgement: (1) that the transfer of the Property to YAG781 Corp is null and void; (2) directing the Kings County Clerk’s Office record the judgment of this Court granting the relief requested; (3) declaring that Defendants and every person or entity claiming under them by title accruing after the filing of the judgment roll, or of the Notice of Pendency of this action, as prescribed by law, be and the same hereby are forever barred and precluded from asserting such claim, the invalidity of which is established in this action, to an estate or interest in the Property, of any kind or nature whatsoever.


The Complaint also seeks judgement for an accounting of all books and records related to this transaction and disbursement of Plaintiffs’ funds; for a constructive trust in the Property, to protect Plaintiffs’ interest in the Property;  and that the Defendants be estopped from claiming any right, title or ownership interest in the Property.


The lawsuit was filed by Brooklyn Attorney, Yifat V. Schnur of YVLS Esq. LLC.


None of the Defendants have yet filed an Answer to that Complaint.


And, in an even more bizarre twist, one partner has retained Brooklyn Attorney Jordan Austin Esq. to file a lawsuit against his own partner!


In that Complaint filed in New York Supreme Court, he alleges that each partner holds 50% ownership in the Brooklyn properties, and that the other partner is attempting to sell off these properties to a third party without his authorization.


"Upon information and belief, the Defendant is actively engage in trying to sell the property, without the consent required by the operating agreement. Specifically, Plaintiff did not approve of the sale, and never gave permission for him to sell the property as required by the operating agreement. Upon information and belief, the Defendant entered into a contract to sell the property and is attempting to sell the property imminently."


The other partner has not yet filed an Answer to this Complaint.


So, where did all the money go???


Ironically, while many millions of dollars were supposedly needed from all of these investors to cover the purchase of the nursing homes, it appears that the Lakewood investors only paid $4.5 million for the nursing homes.


The homes were previously owned by QHC Facilities, which owned eight nursing homes and two assisted living facilities in Iowa, and has been cited for at least 184 regulatory violations in the 21 months and owes $6 million to state and federal taxpayers.


After they filed for bankruptcy late last year amid efforts to find a buyer for all of the chain’s assets, the Lakewood investors submitted a letter agreeing to purchase QHC for $11.6 million, claiming to have the money in hand to complete such a sale.


Their offer triggered an auction, at which an East Coast development company, bid $12.1 million — $100,000 more than the Lakewood investors.


Within a few weeks, the planned sale to the development company fell apart, with a lawyer for the winning company raising questions about some of the facilities being “in imminent danger” of losing Medicare funding due to quality-of-care issues. The Lakewood investors then became the new, prevailing bidder.


But then, suddenly, the Lakewood investors "lowered their offer" to $4.5 million, with a condition that 3 of the nursing homes be closed and eliminated from the sale as they deemed them to be "too unprofitable."


That proposal immediately raised concerns at Lincoln Savings Bank, which had loaned QHC $2 million to keep the company afloat while the planned sale and the bankruptcy worked their way through the court system.


The bank informed the court that it “is deeply troubled by the Lakewood investors actions,” particularly given the nature of QHC’s business: senior care, and noting that the court-approved bidding procedures for the sale of the chain clearly and unequivocally stated that QHC’s assets were to be sold on an “as is” basis, and that all due diligence by any prospective buyers was to be completed prior to the auction taking place.


The bank told the court appears that the Lakewood investors wanted a significant reduction in the sale price “for apparently no reason other than the fact that they no longer like the deal that they are legally obligated to consummate.”


The bank therefore asked the court for the authority to subpoena Blue Diamond for documents and to take the depositions of its executives. The banks said those steps were “unfortunately necessary to attempt to understand” the true reasons for the newly brokered purchase agreement.


The court ultimately approved a settlement agreement in which the Lakewood investors paid $4.5 million, with the chain’s three most troubled care facilities shut down and excluded from the deal, and portions of the unpaid fines were forgiven.


As previously reported here on FAA News, in yet another twist to this entire situation, the Lakewood investors are currently under a foreclosure proceeding involving the Cornell Manor Apartments, an 82 unit multi-family apartment complex in Stratford Borough. The bank has just filed a Motion to appoint a Receiver to manage and sell the property. The Lakewood defendants have not yet responded to that lawsuit which was filed in New Jersey Superior Court, Chancery Division, in Camden County.


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1 comment:

Sammy said...

Always do your due diligence! Get your own survey, and make sure the sf is correct. Verify with the county / state that a property is zoned correctly, has the buildable space your were told and in fact has certain tax breaks 421A etc. Not just things that are promised. Have your own appraisal done. Sellers often fudge numbers and tell you kinds of things. I know we want to trust people and don't want think negatively, but you MUST do your homework. If you don't, then don't cry when it blows up in your face.