Bankruptcy and Legal Issues and Banking & Finance and Lawsuits and Bars/Taverns and Restaurants and Law and Real Estate & Retail and John Bales

Former partner of Moe & Johnny's owner alleges fraud

September 24, 2011

Bankruptcies are always ugly, unpleasant affairs. But suddenly things have turned even more so for restaurateur Charles Mack, who’s facing allegations of fraud and embezzlement from a former business partner.

Mack and his iconic north-side bar, Moe & Johnny’s, sought bankruptcy over the past year—moves he blamed on fallout from his unsuccessful effort to redevelop Buggs Temple at the head of the Central Canal downtown and operate a restaurant there.

The cases seemed to be chugging toward a successful conclusion, with Mack remaining owner of Moe & Johnny’s, until last month, when real estate executive John Bales filed a lawsuit in bankruptcy court charging Mack “willfully and maliciously” misappropriated $200,000 that belonged to him.

The fight is an outgrowth of Bales’ decision in 2007 to help Mack obtain a $200,000 bank loan for the Buggs Temple project by serving as co-borrower. Court records show that, to protect Bales from losses, Mack personally guaranteed full repayment of the debt and also granted Bales a $200,000 mortgage on the Moe & Johnny’s real estate at 5380 College Ave.

According to the suit, Mack sold the restaurant real estate in November 2009, and began leasing the property. But instead of giving any of the more than $200,000 generated from the sale to Bales, Mack “transferred the proceeds to a related entity with the intent to hinder, delay and defraud creditors ... including Bales,” the suit alleges.

Mack could not be reached for comment. His bankruptcy attorney, David Krebs of Hostetler & Kowalik PC, said: “Knowing Chuck, I just don’t believe he would have done anything improper.”

Bales, president of Venture Cos., and his attorney, Samuel Hodson of Benesch Friedlander Coplan & Aronoff, could not be reached for comment.

The mortgage did not surface when title work was done during the property sale in 2009, apparently because of an error in the legal description in documents filed with the Marion County Recorder’s Office. That error, which was corrected in March 2010, does not affect the validity of the mortgage, Bales said in a court filing.

Bales now is making life as difficult as he can for Mack. In addition to filing the lawsuit in Mack’s five-month-old personal bankruptcy case, he filed a motion in the 10-month-old Moe & Johnny’s case objecting to its reorganization plan.

He argued that creditors would recoup a larger amount if Moe & Johnny’s were sold as a going concern rather than allowing current ownership to remain in place and paying creditors some of what they are owed over time.

In addition, on Sept. 21, Bales filed a motion to dismiss Mack’s personal case, arguing that because of Mack’s “bad faith” he is not entitled to the protections of bankruptcy court.

None of Mack’s financial problems apparently stem from Moe & Johnny’s, which he has owned for 14 years. According to bankruptcy records, it “has enjoyed years of profitable annual performance.”

Mack is not involved in Creation Café and Euphoria, the restaurants that now operate in Buggs Temple, 337 W. 11th St.

He and his wife were partners in Tavern at the Temple, which operated for 11 months before closing in 2008.

Hoosier developer settles

A federal bankruptcy judge has signed off on a revised settlement agreement that extricates former Indianapolis developer Sydney “Jack” Williams from a $115 million lawsuit for just $334,000.

Behind the News reported last week that Judge Laurel Isikoff on Sept. 8 rejected the original settlement—which included a sweeping provision that would have barred 120 other creditors from pursuing claims against Williams.

The new deal, approved Sept. 19, eliminated that language, potentially leaving Williams exposed to a barrage of litigation from businesspeople angry he lured them into investing in a Florida grocery-wholesaling business that turned out to be a giant fraud.

The suit resolves a lawsuit brought by the trustee liquidating the business, Florida-based Capitol Investments USA, charging Williams “knew or should have known” it was a fraud but perpetuated it in order to collect rich commissions for bringing in investors.

According to court papers, Williams—founder of locally based Williams Realty Group and now a Naples, Fla., resident—earned 10-percent commissions on hundreds of loans to Capitol, many of which came from friends he met as a Ball State University Sigma Chi.

Williams has said he did not know the company was a fraud and that if he had known he would not have poured millions of dollars of his own money into it.

The trustee, Joel Tabas, said he settled because Williams had few assets to recover.•
 

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