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Real development partners maintain innocence in securities fraud proceeding Real Development partners say they are victims in securities fraud case

  • The Wichita Eagle
  • Published Monday, Nov. 12, 2012, at 10:42 a.m.
  • Updated Monday, Sep. 30, 2013, at 5:49 a.m.


Real Development officials said they are innocent in a securities fraud case brought last week by the Kansas securities commissioner.

In a news release issued Saturday, CEO Michael Elzufon said he and partner David Lundberg, named last week in a cease-and-desist order along with their company, are victims, not participants, in the case brought by Kansas Securities Commissioner Aaron Jack.

The written release was the first comment from Elzufon and Lundberg – known locally as “the Minnesota Guys” – since the case was filed last week.

“We look forward to working with the Kansas Securities Commissioner to resolve any misunderstandings immediately and to have the cease and desist order withdrawn as quickly as possible so that we can continue our revitalization efforts in Wichita,” Elzufon said in a second news release, sent late Monday afternoon.

In that second release, Elzufon elaborated on the dispute:

“By mutual agreement with the bank, we agreed to pledge certain life insurance assets we own as collateral on a loan we have with them,” Elzufon said. “The Kansas Securities Commissioner believes that the individuals and organizations from whom we purchased these life insurance policies have committed fraudulent activities. By pledging these policies, we find ourselves included in their cease and desist order.”

Late Monday, Lundberg called The Eagle to dispute some of the state’s facts in the published order. State investigators have not talked to him or Elzufon, he said, and he contended the investigators got some of their information mixed up. What he and Elzufon did was nothing unusual in trying to secure a bank loan, he said.

“We bought two policies and pledged them to the bank,” he said. “Good God, we’re not stupid.”

Lundberg said the charges and the subsequent coverage has had a big impact on their business activities.

“We didn’t do a … thing wrong, and we’re getting killed here,” he said.

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.”

Securities investigators have not publicly named the bank, and they redacted references to it in the public copy of the order. But Elzufon identified the bank in the news release as Kaw Valley Bank in Topeka.

Others named in the cease-and-desist order include Jeffrey K. Williams, Sherrilynn L. Frierson and Mark K. Nordyke of Hybrid, all with prior securities convictions, according to the order, and Gordon Schultz, the former superintendent of Word of Life Traditional School in Wichita. A school spokeswoman said Schultz’s affiliation with the school ended last year.

On Friday, Jeff Kruske, general counsel for Jack, outlined a search warrant executed Thursday at the Wichita Executive Centre, a Real Development-owned building in downtown Wichita where the company has its headquarters. Hybrid and Churchill are tenants in the building.

Seized were cellphones, computers and 12 banker’s boxes of information. Securities officials did not specify Friday which offices were searched.

Elzufon said in the news release that Real Development was not included in the search. The Eagle contacted Kruske for a response to the news release, but the offices of the securities commissioner were among numerous state and federal government offices closed Monday for Veterans Day.

In the news release, Elzufon acknowledges that he and Lundberg have purchased life insurance policies from Hybrid. However, he denies that the company is engaged in the sale of such policies and describes he and his partner as a “victim of fraud not a perpetrator of fraud” in the securities case.

John Bonner, Lundberg’s attorney, defended his client in a phone interview Monday morning, saying Real Development shouldn’t be named in the complaint.

In a news release, Bonner said, “I am familiar with Mr. Lundberg’s efforts to repay the debt owed the Kaw Valley bank by proposing life settlements as collateral for his personal guaranty. He has done nothing remotely dishonest and I am confident that the Kansas Commissioner of Securities will agree once he has the correct facts.”

The names of Real Development and Elzufon have been connected in recent weeks to a $200 million destination entertainment district along I-95 in Kingsland, Ga. Real Development was slated to appear before the council there on Nov. 26 for the establishment of a district that would route new tax proceeds into the development.

And Internet news accounts indicate that in September Elzufon proposed a downtown redevelopment project in Elmira, N.Y. The Eagle attempted to reach Elmira Mayor Susan Skidmore and council members for comment, but those offices appeared closed for the holiday.

Contributing: Dan Voorhis of The Eagle

Reach Bill Wilson at 316-268-6290 or bwilson@wichitaeagle.com.

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