Real Development, the team of Michael Elzufon and Dave Lundberg best known for redevelopment work in downtown Wichita, was one of four companies named Thursday in a cease-and-desist order by Kansas Securities Commissioner Aaron Jack.
Its an order that city officials said has the potential to halt the companys projects in downtown Wichita.
If this is accurate, and it seems like accurate information, then if they are prosecuted and convicted, that would put the brakes on our projects with them, Vice Mayor Janet Miller said.
The companies and people named in the order must stop any securities-related transactions pending any further investigation by Jacks office. No formal charges have been filed in the case.
The order alleges that Real Development, Hybrid Asset Management, Sutton MN and Churchill Capital Strategies violated the Kansas Uniform Securities Act by attempting to deliver interests in fraudulent life settlement policies to a Topeka bank and unknown investors, according to a news release from Jacks office.
Hybrid Asset Management and Churchill Capital Strategies are listed as tenants at a Real Development property, Wichita Executive Centre, in the cease and desist order.
Elzufon and Lundberg known locally as the Minnesota Guys could not be reached for comment Thursday night.
Individuals named in the order include Jeffrey K. Williams, Sherrilynn L. Frierson, Mark K. Nordyke, Gordon Schultz, Elzufon and Lundberg. The order lists Schultz as affiliated with Wichitas Word of Life Traditional School, but the schools Web site does not list him. School officials could not be reached for comment.
According to Jacks order, the issue began unfolding Oct. 12 when an unnamed Topeka banker contacted the securities commissioner. The banker told state officials he had contacted Williams, the general manager of Hybrid, about a delinquent $2 million construction line of credit loan on Sutton Place, one of the Real Development properties and current home to a local office of the Kansas Department of Labor.
The order outlines a myriad of proposed complex financial transactions to retire the loan, including the sale of Sutton Place to Schultz by Sutton MN that would have been secured by the life settlement policies. Sutton MN is a Kansas company whose mailing address is in care of Jon Lundberg in Minnesota.
Last week, Elzufon told The Eagle that Real Development is near approval for a $30 million loan guarantee from HUD to begin its Exchange Place apartment project at Douglas and Market. That guarantee would be accompanied by $11 million in city incentives if the Wichita City Council approves.
However, Miller said Thursday that the citys current agreements with Real Development are void and the Exchange Place project will have to go through the downtown project review board for approval if the pending securities issue is resolved without charges.
Wichita Mayor Carl Brewer said Thursday afternoon that the securities news stunned him.
With something like this, Ive got to talk immediately to the law department and find out how this affects us, Brewer said. Ive got to get upstairs to Gary (Rebensdorf) right now.
Jeff Fluhr, the president of the Wichita Downtown Development Corp., said he had just learned of the order and was trying to learn out more.
The order also alleges that several of the named respondents have been convicted of securities issues, fraud, theft and other financial crimes in the past:
Frierson, also of Hybrid, pleaded guilty to one misdemeanor count of debt adjusting, involving an offer to purchase securities.
Jacks order also notes a Dec. 11, 2009, cease and desist order by the securities commissioner against Williams, Nordyke and Frierson covering a variety of securities-related transactions. The order also notes a Nov. 8, 2006, personal bankruptcy filing by Schultz.
The Minnesota Guys came to Wichita in the middle of the last decade, buying a dozen long-vacant downtown buildings for pennies on the dollar, with the intent of renovating, refinancing, and then selling or leasing them at a profit. However, credit markets collapsed in 2009, shutting off the groups refinancing.
Real Developments properties fell into disrepair, with a long list of neglected building repairs and unpaid bills as many original investors fell into foreclosure. Some recent refinancing has allowed Real Development to pay some debts and make some crucial repairs.
Also last week, the announcement that Real Development is pursuing a $200 million destination resort on I-95 in Kingsland, Ga., drew criticism from several Wichita City Council members, upset over the incomplete Wichita projects.
Real Development asked the Kingsland council for quick action this month on a tax allocation district the equivalent of tax increment financing in Wichita that would generate an estimated $22 million over 10 years. The Kingsland council is slated to act on the request Nov. 26.