240 years in prison. $180 million fine. At least eight properties were seized, including a major development site in downtown Austin.
Those are the potential consequences facing developer Nate Paul after he was indicted this week on eight counts of making false statements to lenders. Each count carries a maximum penalty of 30 years in prison and a fine of up to $1 million, and prosecutors are also trying to control assets and $172 million in loans he received from the alleged crimes, putting intense pressure on Paul to reach a deal, even Potential to testify against Texas’ embattled attorney general, Ken Paxton.
Paul repeatedly lied to his lenders between March 2017 and April 2018, sending them false financial statements that inflated his cash holdings and reduced what he owed, according to an indictment released by a federal grand jury.
While the lenders Paul allegedly defrauded were not named in the indictment, TRD Most of their identities were established by cross-referencing prosecutors’ claims with Travis County real estate financial records.
The most common allegation against Paul is that he provided fraudulent financial statements to potential lenders as part of the due diligence process. But he is also accused of hiding a partner in the acquisition of the 3M campus, long one of his most prized assets. These are the lenders and the assets now wrapped in the blast:
Ladder Capital Finance
In 2017, Paul was looking to make one of his largest acquisitions to date, a 3M office park in Northwest Austin. The property at 6801 River Place Boulevard is set on 158 acres and includes multiple buildings.
To finance the deal, Paul sought a $64 million loan from Ladder Capital Finance, a New York-based commercial real estate investment trust with assets of $5.9 billion, according to its website. Paul allegedly told Ladder he had $25.3 million in “cash in the bank” and only owed $3.4 million in debt, even though he actually had at least $28.6 million in debt and held “significantly less” than the $25.3 million in debt, according to the indictment. Ten thousand U.S. dollars.
Paul is also accused of sending Ladder a fraudulent organization chart that indicated he held 100% of the property ownership entity in Silicon Hills Campus LLC, when in fact, a Los Angeles-based company had direct control 91% of its other entity. Los Angeles investors, who could not be immediately identified, put more than $14.5 million into the purchase of the property.
(Organizational chart suspected of fraud. Source: U.S. District Court for the Western District of Texas)
Calmwater Capital and an Irish real estate fund
In December 2017, Paul sought a $15 million loan from an Irish investment fund called US Real Estate Credit Holdings for 56 East Avenue, a prime location in Austin’s Rainey neighborhood. But while doing so, he allegedly provided fraudulent bank account summaries to Los Angeles real estate firm Calmwater Capital, which is advising the Irish fund on the deal.
According to the indictment, there was a huge deficit between what Paul said he held in his bank account and what he actually held. An account summary he emailed to Calmwater showed $14.2 million in the account. The indictment alleges that “to Paul’s knowledge, the documents he sent were false and forged” and that the amount in the account was less than $13,000.
(Summary of accounts allegedly fraudulent. Source: U.S. District Court for the Western District of Texas)
(Summary of allegedly legitimate accounts. Source: U.S. District Court for the Western District of Texas)
loan core capital
In late 2017, Paul sought a $33.6 million loan for 105 West Riverside Drive, an office building near his Ego rally in the Southern Congress. Similar to the situation at Calmwater, Paul sent a summary of accounts to LoanCore Capital, a Greenwich, Connecticut-based lender, that allegedly contained $18.57 million, the indictment said. However, prosecutors allege the account contained only about $12,000.
Paul is accused of doing the same thing again with LoanCore in 2018, when he sought a $48.2 million loan for his ownership entities at 7620 Metro Center, 7401 East Ben White Boulevard and 8201 East Riverside Drive in Austin. On that occasion, the account summary claimed $18.6 million when in fact only held $12,000, according to the indictment.
Expand Credit Union
In March 2017, Paul sought a loan totaling $9.2 million from Austin-based Amplify Credit Union for his Austin properties at 707 Cesar Chavez Street and 8201 Burnet Road. When asked about his financial information, Paul allegedly told the credit union that he had $31.6 million in his account but actually held less than $500,000 in cash.
The Cesar Chavez parcel, better known as the IHOP near Rainey Street, is one of the last remaining development parcels in the Goofy neighborhood.
Paul is accused of doing the same in March 2018 after he sought a $2.7 million loan for an industrial project. He allegedly said the company’s total liabilities were only $3.3 million, when in reality they were at least $28.6 million.
Paul’s attorney and lender representatives did not immediately respond to requests for comment.
In addition to the potential prison sentence, prosecutors are asking for the forfeiture of all property related to the crimes and a $172 million verdict, the total amount of loans Paul received from the alleged misconduct.
