Utah Ponzi

Case 2:10-cv-01057-CW Document 2

Filed 10/25/10 Page 1 of 58

MARCUS R. MUMFORD (Utah Bar No. 12737) Attorney for Plaintiffs 299 South Main, Ste. 1300 Salt Lake City, UT 84111 (801) 938-4630 [email protected]

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH, CENTRAL DIVISION * * * * * * * * * * * * * * * * * * * * * * * * * * *

Jon Van de Grift, an individual, Sharon Van de Grift, an individual, The Jon Howard Van de Grift and Sharon Ann Dudek Van de Grift Family Trust, a trust, Texas Lubbock Square VDG, LLC, a Delaware limited liability company, Oklahoma Sunnyview Apartments VDG, LLC, a Delaware limited liability company, Roger Mauer, an individual, Cynthia Mauer, an individual, Tim Lewis, an individual, Sylvia Haskvitz, an individual, Haskvitz Sunnyview, LLC, an Arizona limited liability company, Lewis Sunnyview LLC, an Arizona limited liability company, Marlene Walshin, an individual, Matthew Walshin, an individual, The Marlene J. Walshin Trust, a trust, Rancho Lane, LLC, a Nevada limited liability company, MW Lubbock, LLC, a Nevada limited liability company, and MRW Lubbock, LLC, a Nevada limited liability company, Plaintiffs, v. Richard Higgins, Brandon Higgins, Allan Christensen, Madison Real Estate Group, LLC, Lehman Brothers Bank, FSB, a/k/a Aurora Bank

CASE NO.

COMPLAINT

JURY DEMANDED



FSB, Lehman Brothers Bancorp, Inc., Christopher * Joseph, Kerry Armstrong, LaSalle Bank, Bank of * America Corporation, Trans Lending Corporation, * Jack Wiederecht, Kirk R. Slemmer, Linda Lewis, * Rye Capital Services, LLC, Mark H. Mauldin, John * Mingle, Matthew Galaburri, Land America * Assessment Corporation, Kim Varzik, CB Richard * Ellis, Stroock & Stroock & Lavan, LLP, Robin * Eubanks, Crowe & Dunlevy PC, Lynch, Chappell * Alsup PC, Josh Hamm, Capitol Abstract & Title * Company, Buffalo Land Abstract Company, * Western Abstract & Title Company, Service Title * Company, Tony Lenomon, Julius Blatt, Bob Brandt * Mary Gardner, Jackie Hatton, Julie Noble, Hayden * Littlefield, Stephen DuPlantis, and John Does * 1-160, * * Defendants. * *

Plaintiffs hereby complain against the Defendants and allege as follows: STATEMENT OF THE CASE 1. This case arises from a Ponzi scheme orchestrated and implemented by

Defendants to defraud Plaintiffs out of over $27.47 million, in the course of real estate purchases and/or financings on six apartment properties. The fraud alleged herein was perpetrated, aided, abetted, encouraged and/or acquiesced in by Defendants at Plaintiffs expense. Defendants played various roles in the transactions that defrauded Plaintiffs, but each Defendant knew, should have known, purposefully ignored and/or failed to disclose several red flags and information indicating the underlying fraudulent scheme, all while in the possession of Plaintiffs confidential information that had been collected, transmitted and shared among the Defendants

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in furtherance of the underlying scheme. Plaintiffs seek as remedies damages, punitive damages, and equitable and declaratory relief. PARTIES AND JURISDICTION 2. Plaintiffs Jon Van de Grift and Sharon Van de Grift are husband and wife and

residents of the state of California. 3. Plaintiffs Texas Lubbock Square VDG, LLC, and Oklahoma Sunnyview

Apartments VDG, LLC, are Delaware limited liability companies. The Jon Howard Van de Grift and Sharon Ann Dudek Van de Grift Family Trust is a California Trust. 4. Plaintiffs Roger Mauer and Cynthia Mauer are husband and wife and residents of

the state of Nevada. 5. 6. Plaintiffs Tim Lewis and Sylvia Haskvitz are residents of the state of Arizona. Plaintiffs Haskvitz Sunnyview, LLC, and Lewis Sunnyview LLC are Arizona

limited liability companies. 7. Plaintiffs Marlene Walshin and Matthew Walshin are residents of the state of

North Carolina. 8. Plaintiffs Rancho Lane, LLC, MW Lubbock, LLC, and MRW Lubbock, LLC, are

Nevada limited liability companies. The Marlene J. Walshin Trust is a California Trust. 9. Defendant Lehman Brothers Bank, FSB (Lehman Brothers) is a national bank

with its principal place of business in New York City, New York, that does or has done business in Salt Lake County, Utah.

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10.

Since the time of Lehman Brothers actions giving rise to this complaint, Lehman

Brothers was dissolved and/or changed its name to Aurora Bank FSB, which is headquartered in Wilmington, Delaware, and is a subsidiary of Defendant Lehman Brothers Bancorp, Inc. 11. Portions of Lehman Brothers assets and liabilities and going business concerns

have since been sold or placed into receivership to entities to be discovered and named herein as John Does 1-20. References to Lehman Brothers and Lehman therefore include Aurora Bank FSB, Lehman Brothers Bancorp, Inc., John Does 1-20 and any and all other successor entities to Lehman Brothers. 12. Defendants Christopher Joseph, Kerry Armstrong, and John Does 21-30

(collectively, the Lehman Employees) are individuals of unknown residency who are or were employees or independent contractors or agents of Lehman Brothers and are conducting or have conducted business in Salt Lake County, Utah. (Lehman Brothers and Lehman Employees shall be referred to collectively herein as Lehman.) 13. Defendant LaSalle Bank (LaSalle) is a national bank with its principal place of

business in Chicago, Illinois, that does or has done business in Salt Lake County, Utah. 14. dissolved. 15. Upon information and belief, LaSalles assets and liabilities were acquired by Since the time of LaSalles actions giving rise to this complaint, LaSalle was

Bank of America Corporation. Bank of America Corporation (Bank of America) is a national bank with its principal place of business in Charlotte, North Carolina, which does or has done business in Salt Lake County, Utah. References to LaSalle therefore include Bank of America, and John Does 141-50, who would be any and all other successor entities to LaSalle.

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16.

John Does 31-40 are individuals of unknown residency and are employees or

independent contractors or agents of LaSalle and/or Bank of America (collectively LaSalle Employees) and are conducting or have conducted business in Salt Lake County, Utah. 17. Defendant Trans Lending Corporation (Trans Lending) is a Colorado

corporation, which does or has done business in Salt Lake County, Utah. 18. Defendant Jack Wiederecht is an individual of unknown residency who was or is

Trans Lendings president (Wiederecht) and does or has done business in Salt Lake County, Utah. 19. Defendant Kirk R. Slemmer is an individual of unknown residency who was or is

an agent for Trans Lending (Slemmer) and does or has done business in Salt Lake County, Utah. 20. Defendant Linda Lewis is an individual of unknown residency who was or is an

employee and/or agent for Trans Lending (Lewis) and does or has done business in Salt Lake County, Utah. 21. John Does 41-50 are individuals of unknown residency who are employees,

independent contractors or agents of Trans Lending and are conducting or have conducted business in Salt Lake County, Utah (Wiederecht, Slemmer, Lewis and John Does 41-50 shall be referred to collectively herein as the Trans Lending Employees). 22. Defendant Rye Capital Services, LLC (Rye Capital) is a limited liability

company with its principal place of business in New York City, New York, which is or has done business in Salt Lake County, Utah.

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23.

Defendants Mark H. Mauldin (Mauldin), John Mingle (Mingle), Matthew

Galaburri (Galaburri) and John Does 51-60 (collectively, the Rye Capital Employees) are individuals of unknown residency who are or were employees, independent contractors or agents of Rye Capital and who are conducting or have conducted business in Salt Lake County, Utah. 24. Defendant Land America Assessment Corporation is a corporate organization of

unknown residency, which does or has done business in Salt Lake County, Utah (Land America). 25. Defendant Kim Varzik Odom and John Does 61-70 (collectively, Land America

Employees) are individuals of unknown residency who are or were employees, agents, or independent contractors of Land America and who are conducting or have conducted business in Salt Lake County, Utah. 26. Defendant CB Richard Ellis is a corporation providing real estate appraisal

services (Richard Ellis), which is or has done business in Salt Lake County, Utah. 27. Tony Lenomon, Julius Blatt, Hayden Littlefield, and Stephen DuPlantis and John

Does 71-80 are individuals of unknown residency who are or were employees, agents or independent contractors of Richard Ellis and are conducting or have conducted business in Salt Lake County, Utah (the Richard Ellis Employees). 28. Defendant Stroock & Stroock & Lavan, LLP (Stroock & Stroock) is a

professional corporation with its principal place of business in New York City, New York which is or has done business in Salt Lake County, Utah. 29. Defendant Robin Eubanks and John Does 81-90 (collectively, Stroock & Strook

Employees) are individuals of unknown residency who are or were attorneys, agents and/or

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employees at Stroock & Stroock and are conducting or have conducted legal services in Salt Lake County, Utah. 30. Crowe & Dunlevy is a professional corporation with its principal place of

business in Oklahoma (Crowe & Dunlevy), which is or has done business in Salt Lake County, Utah. 31. Jennifer Berry and John Does 91-100 (the Crowe & Dunlevy Employees) are

individuals of unknown residency who are or were attorneys, agents and/or employees of Crowe & Dunlevy who are conducting or have conducted legal services in Salt Lake County, Utah. 32. Defendant Lynch, Chappell Alsup PC (Lynch) is a professional corporation

with its principal place of business in New York City, New York, which is or has done business in Salt Lake County, Utah. 33. Defendant Josh Ham and John Does 101-110 (collectively, Lynch Employees)

are individuals of unknown residency who are or were attorneys, agents and/or employees of Lynch and are conducting or have conducted legal services in Salt Lake County, Utah. 34. Defendant Capitol Abstract & Title Company is a title insurance company with its

principal place of business in Oklahoma, which is or has done business in Salt Lake County, Utah (Capitol Abstract). 35. Jackie Hatton, Julie Noble, and John Does 111-120 are individuals of unknown

residency who are or were employees, agents or independent contractors of Capitol Abstract and are conducting or have conducted business in Salt Lake County, Utah (the Capitol Abstract Employees).

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36.

Defendant Buffalo Land Abstract Company is a title insurance company and

successor entity to Lawyers Title of Oklahoma City with its principal place of business in Oklahoma City, Oklahoma, which is or has done business in Salt Lake County, Utah (Buffalo Land). 37. Mary Gardner and John Does 121-130 are individuals of unknown residency who

are or were employees or independent contractors of Buffalo Land and/or its predecessor entity Lawyer Title of Oklahoma City, and are conducting or have conducted business in Salt Lake County, Utah (the Buffalo Land Employees). 38. Defendant Western Abstract & Title Company is a title insurance company,

which is or has done business in Salt Lake County, Utah (Western Title). 39. Bob Brandt and John Does 131-140 are individuals of unknown residency who

are or were employees, agents, or independent contractors of Western Title and are conducting or have conducted business in Salt Lake County, Utah (the Western Title Employees). 40. Defendant Service Title Company is a title insurance company, which is or has

done business in Salt Lake County, Utah (Service Title). 41. John Does 151-160 are individuals of unknown residency who are or were

employees, agents, or independent contractors of Service Title and are conducting or have conducted business in Salt Lake County, Utah (the Service Title Employees). 42. Upon information and belief, Defendants Richard Higgins, Brandon Higgins and

Allan Christensen are Utah residents, and principals of Defendant Madison Real Estate Group, LLC, a Wyoming limited liability company with its principal place of business in Midvale, Utah (collectively the Madison Group or Madison).

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43.

Madison Real Estate Group, LLC,and its related entities were the subject of an

enforcement action brought by the Securities and Exchange Commission (SEC) in this Court, titled SEC v. Madison Real Estate Group, et al., 2:08-cv-00243 (Waddoups, J.), which Complaint is incorporated herein by reference, and a receivership action in this Court, titled McConkie v. Rice Properties, et al., 2:09-cv-00275 (Waddoups, J.), which Complaint is also incorporated herein by reference, wherein it was alleged and determined that the Madison Group was a Ponzi scheme. 44. 45. This court has jurisdiction over this matter pursuant to 28 U.S.C. 1332 & 1367. Venue is proper in this Court pursuant to 28 U.S.C. 1391. GENERAL ALLEGATIONS 46. At all times stated herein, Defendants were in possession of Plaintiffs

confidential information that had been collected by the Madison Group and other Defendants and transmitted and shared among Defendants in furtherance of the underlying Ponzi scheme that benefited Defendants at Plaintiffs expense. 47. At all times stated herein, Defendants were in possession of information about the

Madison Group that raised or should have raised red flags to indicate the real estate transactions involving Plaintiffs were made in furtherance of the underlying Ponzi scheme that benefited Defendants at Plaintiffs expense. 48. As Defendants knew or should have known, and as was ultimately revealed, the

Madison Group was operated as a Ponzi scheme. The Madison Group sustained its operation through new investor funds, defrauding investors and persons with whom it transacted business, commingling assets and fees from the purchase of new properties, including fees it then

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distributed to the other Defendants, avoiding its legal obligations, entering into obligations without the intent to fulfill them, and operating without sufficient legitimate underlying business enterprise to support its obligations. Madisons principals, Richard Higgins (Higgins), Brandon Higgins (Brandon) and Allan Christensen (Christensen) (collectively, the Madison Principals), bought and sold more than twenty C-grade apartment complexes as part of the scheme, which benefited the Defendants. The Madison Group further orchestrated commercial loans to facilitate the purchase of the properties by investors, which loans, parties, and events surrounding them are the subject of this Complaint as more fully described below. In all matters, the Madison Group worked with the other Defendants, or at least with the Defendants knowledge, purposeful ignorance and/or acquiescence to perpetrate and execute the underlying fraudulent scheme. 49. In general, the scheme worked as follows: (1) the Madison Group purchased the

properties from related parties with the participation of some or all of the Defendants, typically at or above market value; (2) the Madison Group then immediately and often simultaneously resold the various properties for substantially more than it had them under contract for to groups of investors most often organized into limited partnerships with a Madison entity acting as the general partner, the difference in purchase price not having been disclosed to the investors (the Double Closings); (3) the Madison Group used investor funds, loan proceeds obtained and/or secured by investors, and rents to repay loans on other properties, typically promising, inter alia, to pay investors one percent (1%) per month return and to maintain the properties; (4) but instead of paying the investors with operating profits from the properties, the Madison Group allowed the properties to fall into disrepair, neglected to pay mortgages, and incurred hundreds of

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thousands of dollars in debt to vendors who provided goods and services to the properties; and in all this, (5) the Madison Group comingled rental revenue or funds received from subsequent investors to pay the 1% promised returns to early investors, to pay expenses, or to supplement the purchase of other apartments, and (6) when the scheme was finally exposed, stopped paying on its obligations and left investors with huge losses and liabilities, and insufficient assets and value to cover those losses and liabilities. 50. The transactions at issue and scheme were such that the Securities and Exchange

Commission has asserted that the involved financial institutions, who subsequently attempted to lift the stay on the underlying properties after they were taken into receivership, [were] not, however, holders in due course as there were [o]bvious red flags [that] indicated that Madison and its principals lacked the financial resources to purchase these buildings, that Madison was raising money from third parties and that Madison was purchasing the buildings and then immediately selling [them] to investors at an inflated price. See Memorandum In Opposition To Certain Noteholders Motions To Lift Stay And For Other Relief, filed Feb. 27, 2009, in SEC v. Madison Real Estate Group, et al., 2:08-cv-00243-CW (D. Utah). That document incorporated herein by reference, and notes many illegal practices by some of the Defendants in the transactions at issue. It does not discuss or excuse the other Defendants named in this action. 51. In furtherance of the underlying scheme, Defendants set up the transactions to

hide the involvement and/or motivations of the Madison Group, protect the Madison Group, and benefit themselves and the Madison Group at Plaintiffs expense.

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52.

In furtherance of the underlying scheme, Defendants knew, should have known,

purposefully ignored and/or failed to disclose several red flags and information indicating the underlying fraud (hereinafter red flags), including but not limited to the following: a. Higgins had previously been convicted of securities fraud for his participation in a prime bank Ponzi scheme, and participation in the transactions at issue constituted a violation of the terms of his parole; b. The principals of the Madison Group did not have the experience in real estate transactions that they claimed to have to the other Defendants and Plaintiffs, had questionable financial backgrounds, and credit reports supplied to Defendants but not disclosed to Plaintiffs listed the Madison Group principals as fraud risks; c. The information used and presented by the Madison Group in executing transactions was frequently fraudulent or incorrect, including but not limited to the principals social security numbers, tax information, financial information, etc.; d. That the Madison Group set up accounts at various financial institutions for each property it managed but frequently, and whenever necessary, commingled those accounts and paid expenses for one property from the account of another; e. There were conflicts of interest in the transactions, including conflicts that involved the exchange of money among Defendants, that were not disclosed and for which waiver was not sought or obtained that adversely affected Plaintiffs interests;

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f. The Madison Group had such poor credit that Defendants would not have extended the credit necessary to complete the transactions at issue without the involvement of third parties and without those third parties taking on more than their share of risk and exposure; g. The Madison Group and its principals had been sued for related conduct and transactions; h. Defendants and the Madison Group failed to perform a reasonable due diligence on the transactions, including but not limited to variances from Defendants established policies and procedures; i. The true reasons concerning why the structure and set up on the transactions frequently changed at the last moment before closing to place Plaintiffs in a position of greater risk and exposure than had been previously arranged and agreed, to the benefit of the Madison Group and the other Defendants, was to replace the Madison Group as obligors with Plaintiffs who were more creditworthy persons and entities; j. Defendants had observed the Madison Group enter into a series of questionable transactions of dubious merit, and involving unsophisticated third parties who bore undue risk in the transactions, yet failed to disclose the same because they benefited from the Madison Groups pattern of conduct; k. The structuring of the transactions, with the Double Closings, and the failure to disclose the same to Plaintiffs, meant that the properties were being financed well in excess of their real values, all benefiting Defendants at Plaintiffs expense;

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l. The true financial condition of the properties, including the lack of adequate rent, cash flow and adequate cash reserves, were concealed from Plaintiffs to mask the fact that the properties could not support the loan obligations being placed on them and that Plaintiffs were being asked to take on more risk and exposure than the properties could support; m. The appraisals ordered on the properties, but not disclosed to Plaintiffs, were at times not conducted pursuant to the applicable professional standards, and those appraisals moreover revealed that the Madison Group was highly involved in providing key information to the appraisers, which was not verified by the appraisers, and there was key information omitted from the appraisal reports that would have contradicted the conclusions of said appraisals; n. The fraudulent and negligent handling of insurance and insurance coverage on the subject properties; o. The parties hired to execute portions of the transactions were unqualified to fill the role they were hired to fill. 53. In all this, Defendants participated, aided, abetted, encouraged and/or improperly

acquiesced in the underlying fraudulent scheme and benefited at Plaintiffs expense. 54. Defendants should have made further disclosures to Plaintiffs concerning the

underlying transaction to reveal the true risk and truth concerning the transactions and the Madison Group. 55. Defendants knew, should have known, that the loans set up on the properties with

the Madison Group were going to fail.

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56.

On March 28, 2008, the Securities and Exchange Commission (SEC) filed a

complaint against the Madison Group, Higgins, Brandon and Christensen asserting securities fraud and engagement in a Ponzi scheme. 57. Unknown to Plaintiffs at all times relevant to this transaction, Higgins had

previously been convicted of securities fraud and was in violation of the terms of his parole by associating himself with the Madison Group. 58. The properties purchased by the Madison Group, or entities affiliated with the

Madison Group, and that are at issue in this Complaint are the Sunnyview Apartments, Lubbock Square Apartments, Overlake Apartments, Oakridge Village Apartments, Aspen Village Apartments, and Town Plaza Apartments. Plaintiffs investigation is continuing. SUNNYVIEW 59. In approximately late 2006, Madison, as buyer, entered into a purchase agreement

with an entity closely affiliated with Madison, as seller, for purchase of the property commonly known as the Sunnyview Apartments (the Sunnyview Property). The existence of this agreement was known to Defendants but not disclosed to Plaintiffs. Thus, Madison, and by extension of their relationship, other Defendants, had an undisclosed interest in the Sunnyview Property and in the subsequent sale of the Sunnyview Property to Plaintiffs. 60. In October 2006, Madison formed a partnership with itself as general partner and

Plaintiffs Roger Mauer and Cynthia Mauer as limited partners named Oklahoma Sunnyview, LP, an Oklahoma limited partnership (the Sunnyview Partnership). 61. In January 2007, the Sunnyview Partnership, Sunnyview Apartments VDG, LLC,

Lewis Sunnyview, LLC, and Haskvitz Sunnyview, LLC, among other entities, entered into a

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Tenants in Common Agreement (Sunnyview TIC) whereby each of the forenamed entities agreed to hold a percentage interest, as tenants in common, in the Sunnyview Property (collectively, the Sunnyview Investors). 62. The Jon Howard and Sharon Ann Dudek-Van de Grift Family Trust was also an

interested party in the Sunnyview Property and shall be included herein as part of the Sunnyview Investors. 63. In early 2007, Defendants conspired to obligate the Sunnyview Investors on the

Sunnyview Property at an inflated price and without disclosing any of the aforementioned red flags to the Sunnyview Investors. And in February 2007, Lehman loaned to the Sunnyview Investors the amount of $5,920,000 (the Sunnyview Loan) for purposes of purchasing the Sunnyview Property. Rye Capital assisted Lehman as underwriter in its review and setting of the terms of the Sunnyview Loan. 64. Lehman and Lehman Employees received substantial funds from the close of the

Sunnyview Loan such as closing costs and fees. 65. Unknown to Plaintiff at all times relevant to this transaction, the reality is that it

was a Double Closing: that Madison and/or one or more of the Madison Principals purchased the Sunnyview Property at one price using the funds provided by the Sunnyview Investors, and sold the Sunnyview Property back to the Sunnyview Investors for an amount substantially more than the price the Madison Principals had originally contracted for. With the knowledge and involvement of some or all of the Defendants, Madison and/or one or more of the Madison Principals kept the difference between the original purchase price and the amount of the Sunnyview Loan amount for themselves.

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66.

The Sunnyview Investors provided the down payment necessary to purchase the

Sunnyview Property with the Sunnyview Loan. 67. The terms of the Sunnyview Loan were such that each of the Sunnyview Investors

were jointly and severally liable for repayment of the Sunnyview Loan. 68. Some or all of the other Defendants participated with the Madison Group in the

transactions involving the Sunnyview Property and benefited from the transaction at Plaintiffs expense. 69. Lehman and Lehman Employees were in possession of Plaintiffs confidential

information and, they and their representatives, in that capacity, made representations to the Sunnyview Investors concerning the advisability of the Sunnyvew Loan and structure the Sunnyview Investors had to put in place to obtain the Sunnyview Loan, including that the Sunnyview Investors had to form LLCs to obtain the loan. 70. Defendants orchestrated and structured the Double Closing associated with the

Sunnyview Loan, which was not disclosed to the Sunnyview Investors. 71. Madison and Lehman obtained the services of Trans Lending as mortgage broker

for the financing of the various apartment complex transactions. 72. Trans Lending and Trans Lending Employees received a commission from

Madison and Lehman for brokering several loans involving Madison and Lehman, including the Sunnyview Loan. 73. Trans Lending and Trans Lending Employees collected various documents from

Madison using checklists provided by Lehman for the Sunnyview Loan such as financial statements, credit reports and tax returns, operating histories for the Sunnyview Property, tenant

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in common agreements and information on the Sunnyview Partnership and provided the information to Lehman. This information raised or should have raised numerous red flags about Madison, the Sunnyview transaction and the viability of the Sunnyside Loan. 74. Unknown to Plaintiff at all times relevant to this transaction, Trans Lending,

including without limitation Wiederecht, Slemmer, and Lewis and Trans Lending Employees, knew about the Double Closings and other red flags concerning the transaction but did not disclose them to Plaintiffs. 75. Unknown to Plaintiff at all times relevant to this transaction, Trans Lending and

Trans Lending Employees provided credit reports of the Madison Principals that contained high risk fraud alerts to Lehman, information that was not disclosed to Plaintiffs. 76. Trans Lending and Trans Lending Employees provided inconsistent and

inaccurate information regarding the Principals financial condition, including the overstatement of assets and faulty tax returns to Lehman. 77. Trans Lending and Trans Lending Employees provided Lehman with the credit

information and other underwriting documents necessary for the Sunnyview Loan, including the questionable creditworthiness of the Madison Principals, to Lehman. 78. Trans Lending received substantial commission and other funds for its mortgage

broker services in connection with the Sunnyview Loan. 79. Lehman and Lehman Employees knew or should have known of the Double

Closing associated with the Sunnyview Loan and that the Double Closing was not disclosed to Plaintiffs.

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80.

Lehman and Lehman Employees knew or should have known that Trans Lending

provided incorrect information concerning Madison, the Sunnyview Principals, and the condition and income generation of the Sunnyview Property. 81. Lehman and Lehman Employees made representations to the Sunnyview

Investors that the Sunnyview Loan was based on correct information. 82. On January 9, 2007 Land America released a Property Condition Report for the

Sunnyview Apartments. 83. 84. Land America Employees prepared the condition report. Land America and Land America Employees failed to perform necessary

inspection of the Sunnyview Property and adequately assess the condition of the Sunnyview Property. 85. Land America and Land America Employees failed to follow both state and

national guidelines required of appraisers in issuing its condition report. 86. The condition report provided by Land America reported a substantially better

condition than the actual condition of the Sunnyview Property. 87. The condition report provided by Land America was used by Rye Capital and

Lehman in making their decision to make the Sunnyview Loan. 88. In January 2007, CB Richard Ellis delivered a Complete Appraisal Self Contained

Report, which was an appraisal of the Sunnyview Property. 89. Richard Ellis Employees oversaw the performance and issuance of the appraisal.

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90.

Richard Ellis and Richard Ellis Employees failed to perform necessary inspection

of the Sunnyview Property and adequately assess the value of the Sunnyview Property, such as verifying rent rolls and the condition of the Sunnyview Property. 91. Richard Ellis and Richard Ellis Employees failed to follow both state and national

guidelines required of appraisers in issuing its appraisal. 92. The appraisal provided by Richard Ellis reported a substantially higher value than

the actual value of the Sunnyview Property 93. The appraisal provided by Richard Ellis was prepared for Lehman. Lehman, the

Madison Group and Richard Ellis worked together in basing the appraisal of the Sunnyview Property on false and misleading information. 94. The appraisal provided by Richard Ellis was used by Rye Capital and Lehman in

making its decision to make the Sunnyview Loan. 95. Lehman knew or should have known that the condition report provided by Land

America and the appraisal provided by Richard Ellis of the Sunnyview Property were based on either incorrect information or misrepresentations, that the appraisers did not meet guidelines, and that the appraisals did not represent the true income generation of the Sunnyview Property. 96. The underwriting firm of Rye Capital Investors provided Lehman Brothers with

underwriting services for the Sunnyview Loan. Rye Capital Employees were the underwriters responsible for underwriting the Sunnyview Loan. 97. Rye Capital and Rye Capital Employees did not follow state or national

underwriting guidelines in connection with the Sunnyview Loan.

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98.

Rye Capital and Rye Capital Employees relied on the information provided to it

by Trans Lending without further investigation. 99. Lehman Brothers knew or should have known that Rye Capital either did not

adequately underwrite the Sunnyview Loan or that Rye Capital relied on inaccurate information. 100. Stroock & Stroock represented Lehman in connection with the Sunnyview Loan.

Stroock & Stroock Employees were responsible for the representation of Lehman Brothers in connection with the Sunnyview Loan. 101. Stroock & Stroock and Stroock & Stroock Employees knew or should have

known of the Double Closing associated with the Sunnyview Loan. 102. Stroock & Stroock and Stroock & Stroock Employees knew or should have

known of the credit unworthiness of the Madison Group and the Sunnyview Investors. 103. Stroock & Stroock and the Stroock & Stroock Employees knew or should have

known that Madison was a Ponzi scheme and that Higgins was on parole for securities fraud. 104. The law firm of Crowe & Dunlevy and the Crowe & Dunlevy Employees acted as

counsel to Madison. 105. Crowe & Dunlevy should have known Madison operated as a Ponzi scheme and

that Higgins was in violation of his parole by involving himself with Madison. 106. Crowe & Dunlevy and the Crowe & Dunlevy Employees knew or should have

known of the Double Closing and assisted the parties in the Double Closing. 107. Capital Abstract and the Capital Abstract Employees acted as closing agents for

the Sunnyview Loan.

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108.

Capital Abstract and the Capital Abstract Employees as closing agents for the

Sunnyview Loan knew or should have known of the Double Closing, the credit unworthiness of Madison, and Higgins prior conviction. 109. Defendants concealed their bad acts and the events contributing to the claims

involving the Sunnyview Property until at least February 2009. LUBBOCK SQUARE 110. In approximately fall 2006, Madison, as buyer, entered into a purchase agreement

with an entity closely affiliated with Madison, as seller, for purchase of real property in Lubbock, Texas commonly known as the Lubbock Square Apartments (Lubbock Property). The existence of this agreement was known to Defendants but not disclosed to Plaintiffs. Thus, Madison, and by extension of their relationship, other Defendants, had an undisclosed interest in the Lubbock Property and in the subsequent sale of the Lubbock Property to Plaintiffs. 111. Madison then formed Lubbock Square Texas, LP, a Texas limited liability

company, naming itself as general partner and Tim Lewis and Sylvia Haskvitz among others, as limited partners (the Lubbock Square Partnership). 112. The purpose of forming the Lubbock Square Partnership was to purchase the

Lubbock Property with funds obtained from a Lehman Brothers. 113. In November 2006, the Lubbock Square Partnership entered into a tenancy in

common agreement with Texas Lubbock Square VDG, LLC, MW Lubbock, LLC and MRW Lubbock, LLC (collectively, the Lubbock Square Investors).

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114.

The Jon Howard and Sharon Ann Dudek-Van de Grift Family Trust was also an

interested party in the Lubbock Property and shall be included herein as part of the Lubbock Investors. 115. In late 2006, Defendants conspired to obligate the Lubbock Square Investors on

the Lubbock Property at an inflated price and without disclosing any of the aforementioned red flags to the Lubbock Square Investors. And in November 2006, Lehman loaned to the Lubbock Square Investors $4,550,000 (the Lubbock Square Loan) for purposes of purchasing the Lubbock Square Property. Rye Capital assisted Lehman as underwriter in its review and setting of the terms of the Lubbock Square Loan. 116. Lehman and the Lehman Employees received substantial funds from the close of

the Lubbock Square Loan such as closing costs and fees. 117. Unknown to Plaintiff at all times relevant to this transaction, the reality is that it

was a Double Closing: that Madison and/or one or more of the Madison Principals purchased the Lubbock Property at one price using the funds provided by the Lubbock Square Investors, and sold the Lubbock Property back to the Lubbock Square Investors for an amount substantially more than the price the Madison Principals had originally contracted for. With the knowledge and involvement of some or all of the Defendants, Madison and/or one or more of the Madison Principals kept the difference between the original purchase price and the amount of the Lubbock Square Loan amount for themselves. 118. The Lubbock Square Investors provided the down payment necessary to purchase

the Lubbock Square Property with the Lubbock Square Loan.

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119.

The terms of the Lubbock Square Loan were such that each of the Lubbock

Square Investors were jointly and severally liable for repayment of the Lubbock Square Loan. 120. Some or all of the other Defendants participated with the Madison Group in the

transactions involving the Lubbock Property and benefited from the transaction at Plaintiffs expense. 121. Lehman and Lehman Employees were in possession of Plaintiffs confidential

information and, they and their representatives, in that capacity, made representations to the Lubbock Square Investors concerning the advisability of the Lubbock Square Loan and structure the Lubbock Square Investors had to put in place to obtain the Lubbock Square Loan, including that the Lubbock Square Investors had to form LLCs to obtain the loan. 122. Defendants orchestrated and structured the Double Closing associated with the

Lubbock Square Loan, which was not disclosed to the Lubbock Square Investors. 123. Madison and Lehman employed the services of Trans Lending as mortgage

broker for the financing of the various apartment complex transactions. 124. Trans Lending and Trans Lending Employees received a commission from

Madison and Lehman for brokering several loans involving Madison and Lehman, including the Lubbock Square Loan. 125. Trans Lending and the Trans Lending Employees collected various documents

from Madison using checklists provided by the Lehman for the Lubbock Square Loan such as financial statements, credit reports and tax returns, operating histories for the Lubbock Square Property, tenant in common agreements and information on the Lubbock Square Partnership and provided the information to Lehman. This information raised or should have raised numerous

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red flags about Madison, the Lubbock Square transaction and the viability of the Lubbock Square Loan. 126. Unknown to Plaintiff at all times relevant to this transaction, Trans Lending,



inaccurate information regarding the Principals financial condition, including the overstatement of assets and faulty tax returns to Lehman. 129. Trans Lending received substantial commission and other funds for its mortgage

broker services in connection with the Lubbock Square Loan. 130. Lehman and Lehman Employees knew or should have known of the Double

Closing associated with the Lubbock Square Loan and that the Double Closing was not disclosed to Plaintiffs. 131. Lehman and Lehman Employees knew or should have known that Trans Lending

provided incorrect information concerning Madison, the Madison Principals, and the condition and income generation of the Lubbock Property. 132. Lehman and Lehman Employees made representations to the Lubbock Square

Investors that the Lubbock Square Loan was based on correct information.

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133.

In or around November 2006, Land America Assessment Corporation prepared a

Property Condition Report for the Lubbock Property. 134. 135. Land America Employees prepared the condition report. Land America and Land America Employees failed to perform necessary

inspection of the Lubbock Square Property and to adequately assess the condition of the Lubbock Square Property. 136. Land America and Land America Employees failed to follow both state and


condition than the actual condition of the Lubbock Square Property. 138. The condition report provided by Land America was used by Rye Capital and

Lehman in making its decision to make the Lubbock Square Loan. 139. In or around November 2006, CB Richard Ellis delivered to Lehman Bank a Self

Contained Appraisal Report, which was an appraisal of the Lubbock Square Property. 140. Report. 141. Richard Ellis and Richard Ellis Employees oversaw the performance and issuance In January 2007, Richard Ellis delivered a Complete Appraisal Self Contained

of the appraisal. 142. Richard Ellis and Richard Ellis Employees failed to perform necessary inspection

of the Lubbock Square Property and adequately assess the value of the Lubbock Square Property, such as verifying rent rolls and the condition of the Lubbock Square Property.

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143.

Richard Ellis and Richard Ellis Employees failed to follow both state and national


the actual value of the Lubbock Square Property. 145. The appraisal provided by Richard Ellis was prepared for Lehman. Lehman, the

Madison Group and Richard Ellis worked together in basing the appraisal of the Lubbock Property on false and misleading information. 146. Lehman knew or should have known that the condition report and the appraisal of

the Lubbock Square Property were based on either incorrect information or misrepresentations, that the appraisers did not meet guidelines, and that the appraisals did not represent the true income generation of the Lubbock Square Property. 147. The underwriting firm of Rye Capital Investors provided Lehman Brothers with

underwriting services for the Lubbock Square Loan. Rye Capital Employees were the underwriters responsible for underwriting the Lubbock Square Loan. 148. Rye Capital and Rye Capital Employees did not follow state or national

underwriting guidelines in connection with the Lubbock Square Loan. 149. Rye Capital and the Rye Capital Employees relied on the information provided to

it by Trans Lending and Lehman without further investigation. 150. The condition report provided by Land America and the appraisal provided by

Richard Ellis were used by Rye Capital and Lehman in making its decision to make the Lubbock Square Loan.

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151.

Rye Capital and Rye Capital Employees did not follow state or national

underwriting guidelines in connection with the Lubbock Square Loan. 152. Lehman knew or should have known that Rye Capital either did not adequately

underwrite the Lubbock Square Loan or that Rye Capital relied on inaccurate information. 153. Unknown to Plaintiff at all times relevant to this transaction, Stroock & Stroock

represented Lehman in connection with the Lubbock Square Loan. 154. Unknown to Plaintiff at all times relevant to this transaction, Stroock & Stroock

and Stroock & Stroock Employees helped orchestrate the Double Closing associated with the Lubbock Square Loan. 155. Stroock & Stroock and Stroock & Stroock Employees knew or should have

known of the Double Closing associated with the Lubbock Square Loan, the inadequacy of the services provided by Rye Capital, and the inaccurate information provided by Trans Lending. 156. On information and belief, Stroock & Stroock and the Stroock & Stroock

Employees knew or should have known that Madison was a Ponzi scheme and that Higgins was on parole for securities fraud. 157. Lynch, Ham and Lynch, Chapell & Alsup Employees represented Madison in

connection with the Lubbock Square Loan. 158. Lynch, Ham and Lynch, Chappell & Alsup Employees should have know

Madison operated as a Ponzi scheme and that Higgins was in violation of his parole by involving himself with Madison.

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159.

Lynch, Ham and Lynch, Chappell & Alsup Employees knew or should have

known of the Double Closing associated with the Lubbock Square Loan and aided in orchestrating the Double Closing. 160. Western Title and Western Title Employees, acted as closing agents for the

Lubbock Square Loan and the purchase of the Lubbock Square Property by Madison and the Lubbock Square Investors. 161. Western Title and Western Title Employees knew about, and facilitated the

Double Closing. 162. Defendants concealed their bad acts and the events contributing to the claims

involving the Lubbock Property until at least February 2009. OVERLAKE 163. In approximately fall 2006, Madison, as buyer, entered into a purchase agreement

with an entity closely affiliated with Madison, as seller, for purchase of the property commonly known as the Overlake Apartments (the Overlake Property). The existence of this agreement was known to Defendants but not disclosed to Plaintiffs. Thus, Madison, and by extension of their relationship, other Defendants, had an undisclosed interest in the Overlake Property and in the subsequent sale of the Overlake Property to Plaintiffs. 164. In May 2007, Madison entered into Oklahoma Overlake LP, an Oklahoma limited

partnership with itself as general partner and Roger and Cynthia Mauer as limited partners (the Overlake Partnership). 165. The purpose of forming the Overlake Partnership was to purchase the Overlake

Property with funds obtained from a commercial lender.

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166.

The Madison Principals, Overlake Partnership, and others entered into a limited

partnership agreement whereby each of the entities held an interest in the Overlake Property (collectively, the Overlake Investors). 167. In March 2007, Defendants conspired to obligate the Overlake Investors on the

Overlake Property at an inflated price and without disclosing any of the aforementioned red flags to the Overlake Investors. And in February 2007, Lehman loaned to the Overlake Investors the amount of $7,000,000.00 (the Overlake Loan) for purposes of purchasing the Overlake Property. Rye Capital assisted Lehman as underwriter in its review and setting of the terms of the Overlake Loan. 168. The Overlake Investors provided the down payment necessary to purchase the

Overlake Property with the Overlake Loan. 169. Unknown to Plaintiff at all times relevant to this transaction, the reality is that it

was a Double Closing: that Madison and/or one or more of the Madison Principals purchased the Overlake Property at one price using the funds provided by Overlake Investors, and sold the Overlake Property back to the Overlake Investors for an amount substantially more than the price the Madison Principals had originally contracted for. With the knowledge and involvement of some or all of the Defendants, Madison and/or one or more of the Madison Principals kept the difference between the original purchase price and the amount of the Lubbock Square Loan amount for themselves. 170. The terms of the Overlake Loan were such that the Overlake Investors were

jointly and severally, and individually liable for repayment of the Overlake Loan

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171.

Some or all of the other Defendants participated with the Madison Group in the

transactions involving the Overlake Property and benefited from the transaction at Plaintiffs expense. 172. Lehman and Lehman Employees were in possession of Plaintiffs confidential

information and, they and their representatives, in that capacity, made representations to the Overlake Investors concerning the advisability of the Overlake Loan and structure the Overlake Investors had to put in place to obtain the Overlake Loan. 173. Defendants orchestrated and structured the Double Closing associated with the

Overlake Loan, which was not disclosed to the Overlake Investors. 174. Madison and Lehman obtained the services of Trans Lending as mortgage broker


Madison and Lehman for brokering several loans involving Madison and Lehman, including the Overlake Loan. 176. Trans Lending and Trans Lending Employees collected various documents from

Madison using checklists provided by Lehman for the Overlake Loan such as financial statements, credit reports and tax returns, operating histories for the Overlake Property, tenant in common agreements and information on the Overlake Partnership and provided the information to Lehman. This information raised or should have raised numerous red flags about Madison, the Overlake transaction and the viability of the Overlake Loan. 177. Unknown to Plaintiff at all times relevant to this transaction, Trans Lending,

including without limitation Wiederecht, Slemmer, and Lewis and Trans Lending Employees,

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knew about the Double Closings and other red flags concerning the transaction but did not disclose them to Plaintiffs. 178. Unknown to Plaintiff at all times relevant to this transaction, Trans Lending and


inaccurate information regarding the Principals financial condition, including the overstatement of assets and faulty tax returns to Lehman. 180. Trans Lending and Trans Lending Employees provided Lehman with the credit

information and other underwriting documents necessary for the Overlake Loan, including the questionable creditworthiness of the Madison Principals, to Lehman. 181. Trans Lending received substantial commission and other funds for its mortgage

broker services in connection with the Overlake Loan. 182. Lehman and Lehman Employees knew or should have known of the Double

Closing associated with the Overlake Loan and that the Double Closing was not disclosed to Plaintiffs. 183. Lehman and Lehman Employees knew or should have known that Trans Lending

provided incorrect information concerning Madison, the Overlake Principals, and the condition and income generation of the Overlake Property. 184. Lehman and Lehman Employees made representations to the Overlake Investors

that the Overlake Loan was based on correct information. 185. Land America released a Property Condition Report for the Overlake Apartments.

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186. 187.

Land America Employees prepared the condition report. Land America and Land America Employees failed to perform necessary

inspection of the Overlake Property and adequately assess the condition of the Overlake Property. 188. Land America and Land America Employees failed to follow both state and


condition than the actual condition of the Overlake Property. 190. The condition report provided by Land America was used by Rye Capital and

Lehman in making their decision to make the Overlake Loan. 191. Richard Ellis delivered a Complete Appraisal Self Contained Report, which was

an appraisal of the Overlake Property. 192. 193. Richard Ellis Employees oversaw the performance and issuance of the appraisal. Richard Ellis and Richard Ellis Employees failed to perform necessary inspection

of the Overlake Property and adequately assess the value of the Overlake Property, such as verifying rent rolls and the condition of the Overlake Property. 194. Richard Ellis and Richard Ellis Employees failed to follow both state and national


the actual value of the Overlake Property

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196.

The appraisal provided by Richard Ellis was prepared for Lehman. Lehman, the

Madison Group and Richard Ellis worked together in basing the appraisal of the Overlake Property on false and misleading information. 197. The appraisal provided by Richard Ellis was used by Rye Capital and Lehman in

making its decision to make the Overlake Loan. 198. Lehman knew or should have known that the condition report provided by Land

America and the appraisal provided by Richard Ellis of the Overlake Property were based on either incorrect information or misrepresentations, that the appraisers did not meet guidelines, and that the appraisals did not represent the true income generation of the Overlake Property. 199. The underwriting firm of Rye Capital Investors provided Lehman Brothers with

underwriting services for the Overlake Loan. Rye Capital Employees were the underwriters responsible for underwriting the Overlake Loan. 200. Rye Capital and Rye Capital Employees did not follow state or national

underwriting guidelines in connection with the Overlake Loan. 201. Rye Capital and Rye Capital Employees relied on the information provided to it

by Trans Lending without further investigation. 202. Lehman Brothers knew or should have known that Rye Capital either did not

adequately underwrite the Overlake Loan or that Rye Capital relied on inaccurate information. 203. Stroock & Stroock represented Lehman in connection with the Overlake Loan.

Stroock & Stroock Employees were responsible for the representation of Lehman Brothers in connection with the Overlake Loan.

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204.

Stroock & Stroock and Stroock & Stroock Employees knew or should have

known of the Double Closing associated with the Overlake Loan. 205. Stroock & Stroock and Stroock & Stroock Employees knew or should have

known of the credit unworthiness of the Madison Group and the Overlake Investors. 206. Stroock & Stroock and the Stroock & Stroock Employees knew or should have

known that Madison was a Ponzi scheme and that Higgins was on parole for securities fraud. 207. The law firm of Crowe & Dunlevy and the Crowe & Dunlevy Employees acted as

counsel to Madison. 208. Crowe & Dunlevy should have known Madison operated as a Ponzi scheme and


known of the Double Closing and assisted the parties in the Double Closing. 210. Capitol Abstract and the Capitol Abstract Employees acted as closing agents for

the Overlake Loan. 211. Capitol Abstract and the Capitol Abstract Employees as closing agents for the

Overlake Loan knew or should have known of the Double Closing, the credit unworthiness of Madison, and Higgins prior conviction. 212. Defendants concealed their bad acts and the events contributing to the claims

involving the Overlake Property until at least February 2009. OAKRIDGE 213. In late 2006 or early 2007, Madison, as buyer, entered into a purchase agreement

with an entity closely affiliated with Madison, as seller, for purchase of the property commonly

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known as the Oakridge Apartments (the Oakridge Property). The existence of this agreement was known to Defendants but not disclosed to Plaintiffs. Thus, Madison, and by extension of their relationship, other Defendants, had an undisclosed interest in the Oakridge Property and in the subsequent sale of the Oakridge Property to Plaintiffs. 214. Madison then formed Oklahoma Oakridge Village LP (the Oakridge

Partnership), naming itself as general partner and, entered into a tenancy in common agreement with Marlene Walshin, the Marlene J. Walshin Trust dated April 27th 1990, Matthew Walshin, andRoger Mauer and Cynthia Mauer were limited partners (the Oakridge Investors). 215. In early 2007, Defendants conspired to obligate the Oakridge Investors on the

Oakridge Property at an inflated price and without disclosing any of the aforementioned red flags to the Oakridge Investors. And in March 2007, Trans Lending and/or LaSalle loaned to the Oakridge Investors the amount of $3,900,000.00 (the Oakridge Loan) for purposes of purchasing the Oakridge Property. Rye Capital assisted Trans Lending and LaSalle as underwriter in its review and setting of the terms of the Oakridge Loan. 216. Trans Lending, Trans Lending Employees, LaSalle and LaSalle Employees

received substantial funds from the close of the Oakridge Loan such as closing costs and fees. 217. Unknown to Plaintiff at all times relevant to this transaction, the reality is that it

was a Double Closing: that Madison and/or one or more of the Madison Principals purchased the Oakridge Property at one price using the funds provided by the Oakridge Investors, and sold the Oakridge Property back to the Oakridge Investors for an amount substantially more than the price the Madison Principals had originally contracted for. With the knowledge and involvement of some or all of the Defendants, Madison and/or one or more of the Madison Principals kept the

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difference between the original purchase price and the amount of the Oakridge Loan amount for themselves. 218. The Oakridge Investors provided the down payment necessary to purchase the

Oakridge Property with the Oakridge Loan. 219. The terms of the Oakridge Loan were such that each of the Oakridge Investors

were jointly and severally liable for repayment of the Oakridge Loan. 220. Some or all of the other Defendants participated with the Madison Group in the

transactions involving the Oakridge Property and benefited from the transaction at Plaintiffs expense. 221. Defendants were in possession of Plaintiffs confidential information and, they

and their representatives, in that capacity, made representations to the Oakridge Investors concerning the advisability of the Oakridge Loan and structure the Oakridge Investors had to put in place to obtain the Oakridge Loan. 222. Defendants orchestrated and structured the Double Closing associated with the

Oakridge Loan, which was not disclosed to the Oakridge Investors. 223. Madison and LaSalle obtained the services of Trans Lending as mortgage broker


Madison and LaSalle for brokering several loans involving Madison and LaSalle, including the Oakridge Loan. 225. Trans Lending and Trans Lending Employees collected various documents from

Madison using checklists provided by LaSalle for the Oakridge Loan such as financial

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statements, credit reports and tax returns, operating histories for the Oakridge Property, tenant in common agreements and information on the Oakridge Partnership and provided the information to LaSalle. This information raised or should have raised numerous red flags about Madison, the Oakridge transaction and the viability of the Oakridge Loan. 226. Unknown to Plaintiff at all times relevant to this transaction, Trans Lending,


Trans Lending Employees provided credit reports of the Madison Principals that contained high risk fraud alerts to LaSalle, information that was not disclosed to Plaintiffs. 228. Trans Lending and Trans Lending Employees provided inconsistent and

inaccurate information regarding the Principals financial condition, including the overstatement of assets and faulty tax returns to LaSalle. 229. Trans Lending and Trans Lending Employees provided LaSalle with the credit

information and other underwriting documents necessary for the Oakridge Loan, including the credit unworthiness of the Madison Principals, to LaSalle. 230. Trans Lending received substantial commission and other funds for its mortgage

broker services in connection with the Oakridge Loan. 231. LaSalle and LaSalle Employees knew or should have known of the Double

Closing associated with the Oakridge Loan and that the Double Closing was not disclosed to Plaintiffs.

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232.

LaSalle and LaSalle knew or should have known that Trans Lending provided

incorrect information concerning Madison, the Madison Principals, and the condition and income generation of the Oakridge Property. 233. LaSalle and LaSalle Employees made representations to the Oakridge Investors

that the Oakridge Loan was based on correct information. Rye Capital provided underwriting services for LaSalle in connection with the Oakridge Loan 234. On information and belief, Rye Capital and the Rye Capital Employees relied on

the information provided to it by Trans Lending and LaSalle without further investigation. 235. The law firm of Crowe & Dunlevy and the Crowe & Dunlevy Employees acted as

counsel to Madison, Trans Lending, and/or LaSalle in the Oakridge Loan. 236. Crowe & Dunlevy should have known Madison operated as a Ponzi scheme and


known of the Double Closing and made appropriate disclosures to the parties in the Double Closing. 238. Upon information and belief, Buffalo Land Abstract and Buffalo Land Abstract

Employees were the settlement agents for the Oakridge Loan and the sale of the Oakridge Property. 239. Buffalo Land Abstract and Buffalo Land Abstract Employees, as closing agents

for the Oakridge Loan, knew or should have known of the Double Closing, the credit unworthiness of Madison, and Higgins prior conviction.

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240.

Defendants concealed their bad acts and the events contributing to the claims

involving the Oakridge Property until at least February 2009. ASPEN VILLAGE 241. In 2006 or 2007, Madison, as buyer, entered into a purchase agreement with an

entity closely affiliated with Madison, as seller, for purchase of the real estate in Lubbock County, Texas, commonly known as the Aspen Village Apartments (the Aspen Village Property). The existence of this agreement was known to Defendants but not disclosed to Plaintiffs. Thus, Madison, and by extension of their relationship, other Defendants, had an undisclosed interest in the Aspen Village Property and in the subsequent sale of the Aspen Village Property to Plaintiffs. 242. Madison then formed a limited partnership named Lubbock Aspen Village, LP,

naming itself as a general partner and entities owned or controlled by Marlene Walshin and Matthew Walshin as tenants in common. 243. Lubbock Aspen Village, LP then entered into a Tenants in Common Agreement

with, among other Parties, Rancho Lane LLC, wherein the above named parties agreed to hold the Aspen Village Property as tenants in common (collectively, the Aspen Village Investors). 244. In fall 2007, Defendants conspired to obligate the Aspen Village Investors on the

Aspen Village Property at an inflated price and without disclosing any of the aforementioned red flags to the Aspen Village Investors. And in November 2007, LaSalle loaned to the Aspen Village Investors the amount of $2,520,020.00 (the Aspen Village Loan) for purposes of purchasing the Aspen Village Property. Trans Lending assisted LaSalle as underwriter in its review and setting of the terms of the Aspen Village Loan.

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245.

LaSalle Employees received substantial funds from the close of the Aspen Village

Loan such as closing costs and fees. 246. Unknown to Plaintiff at all times relevant to this transaction, the reality is that it

was a Double Closing: that Madison and/or one or more of the Madison Principals purchased the Aspen Village Property at one price using the funds provided by the Aspen Village Investors, and sold the Aspen Village Property back to the Aspen Village Investors for an amount substantially more than the price the Madison Principals had originally contracted for. With the knowledge and involvement of some or all of the Defendants, Madison and/or one or more of the Madison Principals kept the difference between the original purchase price and the amount of the Aspen Village Loan amount for themselves. 247. The Aspen Village Investors provided the down payment necessary to purchase

the Aspen Village Property with the Aspen Village Loan. 248. The terms of the Aspen Village Loan were such that each of the Aspen Village

Investors were jointly and severally liable for repayment of the Aspen Village Loan. 249. Some or all of the other Defendants participated with the Madison Group in the

transactions involving the Aspen Village Property and benefited from the transaction at Plaintiffs expense. 250. LaSalle and LaSalle Employees were in possession of Plaintiffs confidential

information and, they and their representatives, in that capacity, made representations to the Aspen Village Investors concerning the advisability of the Aspen Village Loan and structure the Aspen Village Investors had to put in place to obtain the Aspen Village Loan.

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251.

Defendants orchestrated and structured the Double Closing associated with the

Aspen Village Loan, which was not disclosed to the Aspen Village Investors. 252. Madison and LaSalle obtained the services of Trans Lending as mortgage broker


Madison and LaSalle for brokering several loans involving Madison and LaSalle, including the Aspen Village Loan. 254. Trans Lending and Trans Lending Employees collected various documents from

Madison using checklists provided by LaSalle for the Aspen Village Loan such as financial statements, credit reports and tax returns, operating histories for the Aspen Village Property, tenant in common agreements and information on the Aspen Village Partnership and provided the information to Lehman. This information raised or should have raised numerous red flags about Madison, the Aspen Village transaction and the viability of the Aspen Village Loan. 255. Unknown to Plaintiff at all times relevant to this transaction, Trans Lending,


Trans Lending Employees provided credit reports of the Madison Principals that contained high risk fraud alerts to LaSalle, information that was not disclosed to Plaintiffs.

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257.

Trans Lending and Trans Lending Employees provided inconsistent and


information and other underwriting documents necessary for the Aspen Village Loan, including the questionable creditworthiness of the Madison Principals, to LaSalle. 259. Trans Lending received substantial commission and other funds for its mortgage

broker services in connection with the Aspen Village Loan. 260. LaSalle and LaSalle Employees knew or should have known of the Double

Closing associated with the Aspen Village Loan and that the Double Closing was not disclosed to Plaintiffs. 261. LaSalle and LaSalle Employees knew or should have known that Trans Lending

provided incorrect information concerning Madison, the Aspen Village Principals, and the condition and income generation of the Aspen Village Property. 262. LaSalle and LaSalle Employees made representations to the Aspen Village

Investors that the Aspen Village Loan was based on correct information. 263. Richard Ellis delivered a Complete Appraisal Self Contained Report, which was

an appraisal of the Aspen Village Property. 264. 265. Richard Ellis Employees oversaw the performance and issuance of the appraisal. Richard Ellis and Richard Ellis Employees failed to perform necessary inspection

of the Aspen Village Property and adequately assess the value of the Aspen Village Property, such as verifying rent rolls and the condition of the Aspen Village Property.

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266.

Richard Ellis and Richard Ellis Employees failed to follow both state and national


the actual value of the Aspen Village Property 268. The appraisal provided by Richard Ellis was prepared for LaSalle. LaSalle, the

Madison Group and Richard Ellis worked together in basing the appraisal of the Aspen Village Property on false and misleading information. 269. The appraisal provided by Richard Ellis was used by Rye Capital and LaSalle in

making its decision to make the Aspen Village Loan. 270. LaSalle knew or should have known that the condition report provided by Land

America and the appraisal provided by Richard Ellis of the Aspen Village Property were based on either incorrect information or misrepresentations, that the appraisers did not meet guidelines, and that the appraisals did not represent the true income generation of the Aspen Village Property. 271. Trans Lending provided LaSalle with underwriting services for the Aspen Village

Loan. Trans Lending Employees were the underwriters responsible for underwriting the Aspen Village Loan. 272. Trans Lending and Trans Lending Employees did not follow state or national

underwriting guidelines in connection with the Aspen Village Loan. 273. Trans Lending and Trans Lending Employees relied on the information provided

to it by Trans Lending without further investigation.

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274.

LaSalle knew or should have known that Trans Lending either did not adequately

underwrite the Aspen Village Loan or that Rye Capital and/or Trans Lending relied on inaccurate information. 275. The law firm of Crowe & Dunlevy and the Crowe & Dunlevy Employees acted as

counsel to Madison, Trans Lending, and/or LaSalle in the Aspen Village Loan. 276. Crowe & Dunlevy should have known Madison operated as a Ponzi scheme and


known of the Double Closing and made appropriate disclosures to the parties in the Double Closing. 278. Upon information and belief, Service Title and Service Title Employees were the

settlement agents for the Aspen Village Loan and the sale of the Aspen Village Property. 279. Service Title and Service Title Employees, as closing agents for the Aspen

Village Loan, knew or should have known of the Double Closing, the credit unworthiness of Madison, and Higgins prior conviction. 280. Defendants concealed their bad acts and the events contributing to the claims

involving the Aspen Village Property until at least February 2009. TOWN PLAZA 281. Madison and/or the Madison Group Principals, as buyer, entered into a purchase

agreement with an entity closely affiliated with Madison, as seller, for purchase of the real estate in Lubbock County, Texas, commonly known as the Town Plaza Apartments (the Town Plaza Property). The existence of this agreement was known to Defendants but not disclosed to

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Plaintiffs. Thus, Madison, and by extension of their relationship, other Defendants, had an undisclosed interest in the Town Plaza Property and in the subsequent sale of the Town Plaza Property to Plaintiffs. 282. Madison formed Town Plaza Lubbock Limited Partnership (the Town Plaza

Partnership), of which Madison or a related entity was general partner and Roger Mauer and Cynthia Mauer, among other parties, were limited partners (the Town Plaza Investors). 283. The purpose of the Town Plaza Partnership was to purchase the Town Plaza

Property with funds loaned to it by a commercial lender. 284. Defendants conspired to obligate the Town Plaza Investors on the Town Plaza

Property at an inflated price and without disclosing any of the aforementioned red flags to the Town Plaza Investors. LaSalle loaned to the Town Plaza Investors the amount of $3,580,000.00 (the Town Plaza Loan) for purposes of purchasing the Town Plaza Property. 285. LaSalle Employees received substantial funds from the close of the Town Plaza

Loan such as closing costs and fees. 286. The Town Plaza Investors provided the down payment necessary to purchase the

Town Plaza Property with the Town Plaza Loan. 287. The terms of the Town Plaza Loan were such that each of the Town Plaza

Investors were jointly and severally and individually liable for repayment of the Town Plaza Loan. 288. Some or all of the other Defendants participated with the Madison Group in the

transactions involving the Town Plaza Property and benefited from the transaction at Plaintiffs expense.

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289.

LaSalle and LaSalle Employees were in possession of Plaintiffs confidential

information and, they and their representatives, in that capacity, made representations to the Town Plaza Investors concerning the advisability of the Town Plaza Loan and structure the Town Plaza Investors had to put in place to obtain the Town Plaza Loan. 290. Madison and LaSalle obtained the services of Trans Lending as mortgage broker

for the purchase, sale and financing of the various apartment complexes. 291. Trans Lending and Trans Lending Employees received a commission from

Madison and LaSalle for brokering several loans involving Madison and LaSalle, including the Town Plaza Loan. 292. Trans Lending and Trans Lending Employees collected various documents from

Madison using checklists provided by LaSalle for the Town Plaza Loan such as financial statements, credit reports and tax returns, operating histories for the Town Plaza Property, tenant in common agreements and information on the Town Plaza Partnership and provided the information to Lehman. This information raised or should have raised numerous red flags about Madison, the Town Plaza transaction and the viability of the Town Plaza Loan. 293. Unknown to Plaintiff at all times relevant to this transaction, Trans Lending,

including without limitation Wiederecht, Slemmer, and Lewis and Trans Lending Employees, knew about the red flags concerning the transaction but did not disclose them to Plaintiffs. 294. Unknown to Plaintiff at all times relevant to this transaction, Trans Lending and

Trans Lending Employees provided credit reports of the Madison Principals that contained high risk fraud alerts to LaSalle, information that was not disclosed to Plaintiffs.

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295.

Trans Lending and Trans Lending Employees provided inconsistent and


information and other underwriting documents necessary for the Town Plaza Loan, including the questionable creditworthiness of the Madison Principals, to LaSalle. 297. Trans Lending received substantial commission and other funds for its mortgage

broker services in connection with the Town Plaza Loan. 298. LaSalle and LaSalle Employees knew or should have known of the red flags

associated with the Town Plaza Loan and that those red flags were not disclosed to Plaintiffs. 299. LaSalle and LaSalle Employees knew or should have known that Trans Lending

provided incorrect information concerning Madison, the Town Plaza Principals, and the condition and income generation of the Town Plaza Property. 300. LaSalle and LaSalle Employees made representations to the Town Plaza Investors

that the Town Plaza Loan was based on correct information. 301. Defendants concealed their bad acts and the events contributing to the claims

involving the Town Plaza Property until at least February 2009. 302. As a result of the actions as set forth in the preceding paragraphs, Defendants

have benefitted at Plaintiffs expense and Plaintiffs have been harmed in an amount to be determined at trial.

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CAUSES OF ACTION FIRST CLAIM FOR RELIEF GROSS NEGLIGENCE (Against All Defendants) 303. The allegations set forth in the preceding paragraphs are incorporated and restated

herein by reference. 304. Defendants had a duty of care to Plaintiffs by, among other things, being in

possession of Plaintiffs confidential information which was collected by the Madison Group and transmitted and shared among Defendants in furtherance of their scheme, benefiting from transactions entered into with or involving Plaintiffs, and as reasonable and prudent market participants. 305. Defendants recklessly breached their duty of care by, inter alia:

a. participating in the transactions described above that raised or should have raised red flags to indicate the transactions were made in furtherance of the underlying Ponzi scheme that benefited Defendants at Plaintiffs expense; b. making representations or omitting material facts in information provided to Plaintiffs that Defendants knew or should have known false and/or misleading, or made with reckless disregard for the truth; c. participating, aiding, abetting, encouraging or acquiescing in the transactions set forth above that were made in furtherance of the underlying Ponzi scheme that benefited Defendants at Plaintiffs expense, and notwithstanding the conflicts of interest and red flags set forth above;

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d. setting up the transactions described above to hide the involvement and/or motivations of the Madison Group, protect the Madison Group, and/or benefit themselves and the Madison Group at Plaintiffs expense; e. failing to verify information concerning the transactions described above; f. failing to diligently investigate the transactions described above; and g. failing to disclose to Plaintiffs red flags that they knew or should have known concerning the transactions described above. 306. detriment. 307. Plaintiffs suffered damages as a result of Defendants reckless disregard of its Plaintiffs relied on Defendants in the transactions described above to their

duty of care in an amount to be established at trial. 308. Defendants actions involved a reckless disregard for the harm Plaintiffs suffered

such that punitive damages should also be awarded to Plaintiffs. SECOND CLAIM FOR RELIEF NEGLIGENCE (Against All Defendants) 309. The allegations set forth in the preceding paragraphs are incorporated and restated

herein by reference. 310. Defendants had a duty of care to Plaintiffs by, among other things, being in

possession of Plaintiffs confidential information which was collected by the Madison Group and transmitted and shared among Defendants in furtherance of their scheme, benefiting from transactions entered into with or involving Plaintiffs, and as reasonable market participants. 311. Defendants breached their duty of care by, inter alia:

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a. participating in the transactions described above that raised or should have raised red flags to indicate the transactions were made in furtherance of the underlying Ponzi scheme that benefited Defendants at Plaintiffs expense; b. making representations or omitting material facts in information provided to Plaintiffs that Defendants knew or should have known false and/or misleading, or made with reckless disregard for the truth; c. participating, aiding, abetting, encouraging or acquiescing in the transactions set forth above that were made in furtherance of the underlying Ponzi scheme that benefited Defendants at Plaintiffs expense, and notwithstanding the conflicts of interest and red flags set forth above; d. setting up the transactions described above to hide the involvement and/or motivations of the Madison Group, protect the Madison Group, and/or benefit themselves and the Madison Group at Plaintiffs expense; e. failing to verify information concerning the transactions described above; f. failing to diligently investigate the transactions described above; and g. failing to disclose to Plaintiffs red flags that they knew or should have known concerning the transactions described above. 312. detriment. 313. Plaintiffs suffered damages as a result of Defendants breach of its duty of care in Plaintiffs relied on Defendants in the transactions described above to their

an amount to be established at trial.

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THIRD CLAIM FOR RELIEF FRAUD (Against All Defendants) 314. The allegations set forth in the preceding paragraphs are incorporated and restated

herein by reference. 315. In the transactions described above, Defendants made representations to

Plaintiffs, including but not limited to, representations that the transactions were advisable, based on accurate information, including financial information, based on accurate and proper underwriting information and principles, based on accurate and properly conducted appraisals, that the proceeds of loans were intended only for the purchase of the properties described above, and that the transactions had to be structured in the manner provided. These representations were intentionally false and misleading, or made with reckless disregard for the truth, as Defendants knew or should have known that the Madison Group was operating as a Ponzi scheme, that the transactions were conducted as Double Closings wherein money was diverted at closing to the Madison Group as opposed to solely for the purchase of the properties at issue, that Higgins was on parole for securities violations and the transactions violated the terms of his parole, and were aware of red flags concerning the transactions. 316. Defendants further committed material omissions of facts in the information

shared and transmitted to Plaintiffs in the transactions described above, including but not limited to the failure to disclose red flags concerning the transactions, and said omissions were made with the intent to defraud Plaintiffs or with reckless disregard for the truth. 317. These misrepresentations and omissions were made by Defendants for the

purpose of defrauding Plaintiffs and inducing them to enter into the transactions set forth above.

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318.

Plaintiffs relied on Defendants to their detriment, and Defendants knew that

Plaintiffs would rely on them to their detriment. 319. Defendants knew or should have known that they stood to benefit, and did in fact

benefit, significantly from the transactions, in the form of, inter alia, costs, fees, interest coming to them as a result of the transactions. 320. 321. Plaintiffs have been damaged in a manner and amount to be established at trial. Defendants actions involved malice, an intent to defraud, and/or a deliberate

disregard for the harm Plaintiffs suffered such that punitive damages should also be awarded to Plaintiffs in an amount to be established at trial. FOURTH CLAIM FOR RELIEF AIDING AND ABETTING FRAUD (Against All Defendants) 322. The allegations set forth in the preceding paragraphs are incorporated and restated

herein by reference. 323. In the transactions described above, Defendants aided and abetted the Ponzi

scheme operated by the Madison Group by making representations to Plaintiffs, including but not limited to, representations that the transactions were

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Utah Ponzi