| A pyramid scandal left at least 57 investors waiting anxiously for their returns after a key corporation involved in the business deal filed for bankruptcy in July this year.
Meridian L.L.C., the luxury condominium property in Bainbridge Island, filed for bankruptcy on Wednesday, July 25th of this year, leaving an assembly of people out of luck.
Meridian L.C.C. and Malibu Development teamed up to renovate and sell the luxury condominiums, using a group of primary players as their chief fund collectors.
John M. Erickson, Bruce McCurdy, Michael B. Reetz, and Christopher M. Heins were the men who became involved with Malibu Development as the primary players in the pyramid scheme.
According to the court documents, Heins, McCurdy and Erikson signed a deal with Malibu Development where they were paid a 15 percent commission in cash if they found investors for the project. The “Finder’s Agreement” read, “If one or more potential Investor(s) invest in the Company or provide a financial guarantee for the Company, then the finder shall be entitled to a fee… to be paid in cash to the Finders under the following schedule: 15.0% of all amounts.”
Malibu Development was using the money from these investors to pay off the original loans to buy and renovate Meridian L.C.C., thus creating a pyramid scheme.
Potential investors were lured into the scheme through signs posted around Kitsap Country that read, “Earn 8 percent APR, 12 Month Maturity, Fully Secured.” A sign was posted along Highway 305, one along State Route 101, and one in the offices of both Heins and Reetz, among others. Heins paid Reetz $100 for each referral he sent him.
All investments were made on a one year terms with a promised interest rate ranging between 8 to 12 percent, depending on the investment amount. No investor was provided information on who guaranteed their interest. However, investors were told that they as a group would be the first name on the deed of trust. Heins failed to mention the other three names already on the deed of trust prior to them.
Two companies already took first and second place on the deed of trust: a local credit union who loaned Malibu $4.5 million dollars, and a private investor who loaned Malibu Development $1.5 million for development.
Altogether, $2.8 million dollars were accumulated between the 57 individual investors, most of which was supposedly invested into the same five condominiums that were already owned by the Meridian Homeowner’s Association. The individual investment amounts ranged from $1200 to $200,000, according to the court documents.
Erikson and McCurdy acted on behalf of Malibu Development. They signed the Promissory Notes and Deeds of Trust that were given to the investors.
When the year long term came to an end, investors were offered an increased interest rate if they extended their length of investment, the reason being that the Malibu Development needed additional funds because not all of the condominiums had been sold.
Investors were brought into the spotlight of the scam when they received foreclosure notices from the credit union telling them that the units they invested in Meridian L.C.C. were being sold. Then Meridian L.C.C. filed for bankruptcy this past July, effectively completing the nightmare.
For Heins, this type of investment scheme was not his first time. His company, CMHCEH, L.L.C., borrows money in order to purchase and renovate real estate projects. These investments totaled $270,000.
Malibu Development, Meriden LLC, and Heins were charged with misrepresenting the investor’s position on the deed of trust. They were also charged with failing to disclose sufficient information concerning the project. None of the parties involved in this scandal were licensed to sell securities or act as a broker-dealer in the State of Washington.
According to the court documents, Malibu Development, Meridian, and the other violators, “…constitute a threat to the investing public, and that a summary order to cease and desist from those violations is in the public interest and necessary for the protection of the investing public.” They were ordered to cease and desist from their actions immediately. Fines were issued to all of the involved parties; $50,000 to be paid by both Malibu Development and Meridian, and $10,000 from Erikson, McCurdy, Heins, Reetz, and CMHCEH, L.L.C.
Meanwhile, the majority of investors are left holding the bag waiting for their returns after investing a collection of life savings, retirement funds, and plain old investment money.
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