Lawsuit alleges mortgage lender is a ‘Ponzi scheme’

Romspen Mortgage Limited Partnership is being sued by a former client who alleges that the fund is being run as a Ponzi scheme and that it engaged in a pattern of fraudulent conduct that resulted in him losing a commercial property in Austin, Texas, through court proceedings.

Daniel White, the complainant—who’s additionally suing Romspen Investment Corporation—purchased the 109-acre property, which he’d initially intended to carve up and sell but, after visiting the property, fell enamoured and envisioned developing a wellness complex. However, according to court filings, White, who defaulted on the loan-to-own mortgage provided by Romspen, alleges that the “Defendants fraudulently manufactured and then inflated the property’s debt. Defendants then fraudulently pushed Mr. White and his assets towards bankruptcy, positioning themselves to take possession of multiple real estate and business assets owned by Mr. White as a lender bidder.”

Additionally, White’s amended complaint alleges the following:

“Plaintiff alleges that Romspen’s business is, in effect, nothing more than a long running and far-reaching (and, at least thus far, highly successful) Ponzi scheme,” the filing said.

In fact, the trustee in the Chapter 11 bankruptcy case involving White filed an emergency motion to limit Romspen’s credit bid, alleging that the mortgage firm systematically starved White, the debtor, of crucial funding, which it had been contractually obligated to provide, halting redevelopment of the Austin-based property that had initially been appraised for $350 million but was bought by Rompsen for $46 million through court proceedings.

The bankruptcy trustee’s motion explains that upon undertaking an investigation into Romspen’s prepetition actions, liens and claims, including thousands of pages of documents and conducting interviews with witnesses, it decided to prepare an adversary complaint against Romspen seeking a disallowance of the lender’s claims, an equitable subordination of its claim and assignment of its liens to the estate. Moreover, it seeks punitive damages.

“In justifying this relief, the Trustee’s investigation supports the accusation against Romspen… and many other accusations,” stated the motion. “Rompsen’s conduct with respect to the Loan strongly suggests Romspen never intended to perform its funding obligations to the Debtor. Instead, Romspen delayed funding the Debtor’s draws under the Loan beginning with the second draw, refused to consent to an already authorized PACE [property assessed clean energy financing] Loan, required to fund critical environmental components of the Project, and manufactured a series of pretextual allegations of default against the Debtor. Romspen ignored its own professionals’ warnings and pleas, improperly starved the Debtor of the funding needed to successfully redevelop the Project, and forced defaults that led the Debtor into foreclosure, litigation, receivership, and involuntary bankruptcy, leaving millions of dollars in credit claims unpaid.”

Bruce J. Duke, Dan White’s legal representation, noted that the bankruptcy trustee independently concluded that the mortgage lender had defrauded White. Court filings claim that Romspen denied White one-third of the budgeted financing for the project, thereby sealing his fate.

“Rompsen had put in a credit bid on the property in Texas and the trustee put in a tremendous objection to their credit bid. They filed it on an emergency basis. They go through the thread of Rompsen’s bid and assert serious allegations against Romspen,” Duke told CREW.

As a co-developer of the project, the trustee’s motion says, Romspen tried to wrest control of the project from White rather than protect its security interest and repayment of the loan. The motion additionally asserts that Romspen and its agents co-opted White’s decision making at critical junctures, which “deviates significantly from the lender/borrower relationship, providing Romspen improper influence of the Debtor’s pre-bankruptcy decision making operations.” Moreover, the trustee alleges that Romspen sabotaged White’s ability to secure a PACE loan, which it knew he needed to complete the project.

White’s relationship to Romspen can be traced back about 15 years to the company’s managing general partner, Wesley Roitman, who helped secure a $15 million loan. In 2008, having settled all outstanding debts, White left for South America where he worked in forest preservation and on other environmental social programs. Upon receiving a call from Romspen inviting him into a deal for the $109-acre Austin property, an old Motorola campus with chip manufacturing facilities and laboratories, White agreed and paid $5-6 million. In an interview, White told CREW that the whole ordeal wiped out his family’s trust but that he has good friends helping pay his legal fees. He also alleges that Romspen has cleaned out other debtors like him, leaving them incapable of litigating.

“Now [Romspen] owns the property and they’re developing it in Austin, which is the hottest market in North America, for sure,” said White. “I lost my land and my money and the security over my trust. Luckily, I have good friends and I have the ability to fight them and pay the legal fees. We have the evidence, but not the funds to defend it, and that’s what happens to the majority of people Romspen takes advantage of—they clean them out so they can’t fight back. But, fortunately, I have friends and sufficient capital.”

Romspen, for its part, is suing White for the $125 million it loaned, claiming that a promissory note for that amount is outstanding.

Romspen declined to be interviewed for this story but provided CREW an emailed statement: “For over 60 years, Romspen, our employees and investors have grown our business on the foundations of professional integrity and ethical business practices. Romspen has, and will continue to, aggressively defend itself against litigation and to enforce its loan recovery remedies. We deny all allegations claimed by the plaintiff in this matter and are highly confident we will be successful in resolving both the U.S. and Canadian litigation in our favour.”

Lawyer David Franklin, who alerted the RCMP to the alleged syndicated mortgage fraud perpetrated by Fortress Real Developments, as well as the Ontario Provincial Police to alleged fraud by Tier 1 Mortgage Corporation, says that White appears to have a strong case against Romspen and believes he will prevail.

“Dan White got involved with Wesley Roitman to make a mortgage loan and Wesley made a commitment but did not make the advances, and as a result the whole deal fell apart,” said Franklin. “Dan will collect. He has a very strong case and the court in Texas stayed the proceedings because Romspen can’t establish that any money is owing. Romspen can’t show they’re owed money.”