Legal Issues and Bankruptcy and Investing and Banking & Finance and Law and Real Estate & Retail

Judge in Ponzi case deals blow to Hoosier developer

September 17, 2011

A federal bankruptcy judge in Florida has rejected a settlement that would have extricated former Indianapolis developer Sydney “Jack” Williams from tens of millions of dollars in claims for a mere $334,000.

The rejection is a big setback for Williams, 64, who is under siege from a group of Indiana and Florida businesspeople angry he lured them into investing in a Florida grocery-wholesaling business that turned out to be a giant fraud.

The bankruptcy trustee liquidating the business, Miami Beach, Fla.-based Capitol Investments USA, sued Williams for $115 million last year, charging he “knew or should have known” it was a fraud, but perpetuated it in order to collect rich commissions for bringing in investors.

Just months later, the trustee, Joel Tabas, reversed course and negotiated the settlement after concluding Williams, a longtime Indiana resident who now lives in Naples, Fla, had few assets to recover, and those he did have were likely to go to other creditors, such as the Internal Revenue Service.

Among other things, the deal would have given Tabas half the proceeds from selling Williams’ Naples home—money that normally would have been legally off limits to creditors.

But many of the investors are skeptical that Williams, who claimed in a 2007 financial statement to be worth more than $35 million, has fallen on such hard times.

“The victims live in Jack Williams’ neighborhood. They see him at the country club. They see the way he lives,” said Linda Worton Jackson, a Miami attorney who helped persuade Judge Laurel Isicoff to reject the settlement during a three-hour hearing Sept. 8.

Williams, founder of the local strip-center developer Williams Realty Group, recruited dozens of investors to Capitol, which, at least in recent years, had no real operations, authorities say.

Its CEO, Nevin Shapiro, a year ago pleaded guilty to money laundering and securities fraud in what authorities called an $880 million Ponzi scheme. In June, he was sentenced to 20 years in prison.

According to court papers, Williams earned a 10-percent commission on hundreds of loans to Capitol, many of which came from friends he met as a Ball State University Sigma Chi. In another filing, Tabas said, “Williams brought so many investors into Capitol that he called himself the Bank of Naples.”

It’s not clear where all the money went. But in a jailhouse interview with Yahoo Sports this summer, Shapiro said he lavished millions of dollars in impermissible benefits on University of Miami football and basketball players over nearly a decade.

Among the Hoosier investors are Charles Brown, a principal in Indianapolis-based Southern Bells Inc., one of the nation’s largest Taco Bell franchisees, and prominent local attorney James R. Fisher, a former Ice Miller partner and principal in Indianapolis-based firm Miller & Fisher LLC.

Brown was among about a half dozen investors who hired attorneys to oppose the settlement. In court papers, the investors said they didn’t even know Shapiro or his company and invested only because they knew Williams and thought they could trust him.

“To induce each of the creditors to loan money to Capitol, Williams assured them that the loan was a no-risk proposition, so much so that Williams agreed to provide each of the creditors with a personal guarantee,” Brett Amron, another Miami attorney who helped investors fight the settlement, wrote in a filing.

To entice Williams into the deal, Tabas agreed to a sweeping provision that would have barred more than 120 creditors—including the investors who received personal guarantees from Williams—from pursuing separate claims against him.

Amron suggested in a court filing that Williams was trying to use the settlement with the trustee “to achieve what amounts to a discharge of his personal obligations.” In rejecting the deal, Judge Isicoff said she might have ruled differently had the agreement not included that provision.

Williams filed for personal bankruptcy a year ago. In a filing in that case, his attorney said Williams was so convinced Capitol was a legitimate business that he poured millions of dollars of his own into the company and agreed to guarantee investments by other backers.

He said Williams’ fortune disappeared when Capitol collapsed and when the real estate market crashed, sharply curtailing the income he received from his ownership stakes in real estate.

Jackson, the attorney for investors, said that, even if Williams is short on assets now, “Jack Williams is somebody who will land on his feet. The creditors believe he has assets or will have assets in the future, and they will be able to enforce judgments against him.”

Creditors now are free to launch legal assaults against Williams. A judge this fall dismissed his bankruptcy, wiping out the automatic stay on litigation that would have kept them at bay.

But Williams can take consolation in one fact: Criminal investigators apparently don’t believe he was in cahoots with Shapiro. Federal prosecutors investigated Williams through much of 2010 before informing him in December that “he was no longer a party of interest,” according to a filing by Williams’ attorney.•

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