FORT MYERS, Fla. -
The suit, filed in federal court here, claims Norlarco lent money to investors knowing the investors could not repay the loan, but used inflated appraisals to qualify them anyway. The suit also names as defendants First Home Builders of Florida and its affiliate, First Mortgage Lenders of Florida, both of which have been acquired by home building giant K. Hovnanian Enterprises.
The suit is similar to, but adds new details to, claims filed in dozens of suits brought in state and federal courts naming Norlarco, as well as Huron River Area CU and New Horizons Community CU, all of which have been taken over by NCUA in recent months.
The parties to the suits are scheduled to meet in a public hearing at the U.S. District Court for the Middle District of Florida this week.
New Horizons Community CU of Denver was sold by NCUA in a purchase and assumption agreement last June to Security Service FCU in San Antonio. The three failed credit unions had more than $500-million in residential construction loans to Cape Coral and adjacent Lehigh Acres, many of which have defaulted. Dozens more credit unions are holding loan participations derived from the Florida projects that were bought from the credit unions.
Investigators with the U.S. Justice Department and the Securities and Exchange Commission are looking into the expanding real estate bust in southwest Florida, which has caused a flurry of lawsuits by buyers in the program, known as Millionaire University, according to several sources familiar with the case and financial disclosures by the companies involved.
Among other things, the probe is focused on Russell Whitney, king of the real estate investment infomercial and creator of such get-rich programs as Millionaire University, Rich U, Rich Dad, Teach Me Foreclosure and Real Estate Investing and Teach Me To Trade.
A federal grand jury has been impaneled by the U.S. Attorney for the Eastern District of Virginia to investigate some of the same charges brought in dozens of civil suits by investors claiming fraud and securities violations, according to a financial disclosure by Whitney Information Network (pink sheets stock symbol RUSS), one of Russ Whitney's companies.
Lawyers for Whitney met in teleconference earlier this month with lawyers for NCUA, which has control of Norlarco and Huron Rivera Area, and attorneys for the real estate investors who say they were swindled by the Whitney get-rich programs. Sources involved in the discussion said the various parties are working to set a schedule for what could be a protracted litigation.
Whitney used cable and local television commercials to induce thousands of investors around the country to enroll in his real estate classes for as much as $10,000, then to buy properties in, among other developments, Cape Coral and Lehigh Acres, often from him, according to the company's disclosures. The company said it has hired a prominent national law firm, Wilmer Cutler Pickering Hale and Dorr LLP, to conduct its own internal investigation and to work with authorities on their probe.
The company has indefinitely postponed its annual shareholders meeting and the filing of its quarterly financial statements while it deals with the probe. Lawyers representing Whitney did not return calls seeking comment.
The three credit unions helped further the scheme by providing millions of dollars-as much as $500 million-in mortgages. Many of those mortgages are in default because of a failure to pre-lease the properties, a key to the investment scheme.
