The federal investigation into the real estate deals of Greg Jeffreys – the man at the center of the Ridpath mess – depicts schemes so brazen that it’s hard to imagine how he got banks and appraisers to go along.
But he did. Over and over again, both before the recession and after. The checks and balances didn’t check or balance, and a lot of people paid a huge price. Banks and appraisers were either complicit, asleep at the wheel, or unacceptably gullible.
The complexity of the deals – and the number of ways that Jeffreys allegedly cooked the books and hoodwinked investors – defies easy summary. He has not been charged with any crime, but charges seem virtually inevitable. Today we’ll look at a single Jeffreys deal, as described by federal investigators and investors, to illustrate the pattern.
The deal was not a Ridpath property, but it shares a lot of hallmarks with the sales that broke up the historic hotel into individual condominiums. In fall 2006, Jeffreys and a partner, Steven “Brian” Main, undertook to buy and sell a 39-acre piece of property in Airway Heights. On Sept. 25, 2006, they agreed to pay $300,000 for the land.
Meanwhile, Jeffreys and Main were seeking investors to buy the land from them. They told these potential investors that for an investment of $10,000, they’d be able to get in on a “discount” price for the land of $1.6 million. The investors would then be able to flip the property for a big profit because the land was actually worth $4.25 million.
How in the world did they pull this off? Represent the value of land at more than 10 times its actual sale price? Surely someone – an appraiser or a banker, perhaps – would spy the outrageous inflation involved here.
Nope. Jeffreys managed to produce a friendly appraisal and got a bank to swallow it. It’s a pattern that federal investigators and people suing Jeffreys say was duplicated in the Ridpath deals, and it’s one of the sticky problems at the Ridpath still – banks are foreclosing on properties for amounts that far exceed the property’s actual values, and they want to recover their money.
But back to Airway Heights and the 39 acres. Three days after Jeffreys and Main signed an agreement to purchase that land for $300,000, they had an appraisal done by Value Logic Appraisal. Value Logic did not include the $300,000 agreement as a comparable sale in arriving at an appraisal that justified a commercial value of $4.25 million for the land.
Value Logic did use four other “pending” transactions involving Jeffreys and his various LLCs, and gave the most weight to sales that were “not arm’s length.” In other words, investigators say, Jeffreys floated “sham transactions” and got his appraiser to use them in arriving at vastly inflated values. Two technical reviews of the appraisal would conclude that it was unreliable and misleading.
But that wouldn’t come until later. In late 2006, the appraisal was done, the investors were ready to pony up $10,000 each and borrow the rest, and RiverBank used the appraisal when agreeing to finance the rest of the $1.6 million purchase.
The deal went forward. On Jan. 11, 2007, Jeffreys’ attorneys filed two HUD 1 statements with the federal government. The first detailed the purchase of the 39 acres to a Jeffreys LLC for $300,000; the second detailed the sale of the 39 acres by a Jeffreys LLC to the investors for $1.6 million.
That, plus Jeffreys kept a 25 percent ownership interest.
The flip flopped. Investors had been expecting a quick sale and profit – “Jeffreys and Main represented during investment solicitations that they had multiple buyers interested in the land,” according to an affidavit filed in support of a search warrant executed by the FBI. But no buyers materialized.
When the investors began looking at the deal more closely, troubling signs began emerging. A lawsuit was filed, and it proceeds through court. When the investors had the temerity to complain, one of them heard that “Jeffreys has made verbal threats to kill” them for it, according to the FBI.
All told, the feds say, Jeffreys used sham transactions to defraud investors and the government of millions of dollars, all while continuing to wheel and deal, and all while continuing to play the high roller in Las Vegas.
Meanwhile, an intractable mess festered downtown, built on dirty deals and aided and abetted by the very people who were supposed to make sure they were clean.