Minnesota-based developers appear in Sedgwick County court for preliminary hearing

Two of the highest-profile downtown Wichita investors of the past decade appeared in Sedgwick County District Court on Monday.

David Lundberg and Michael Elzufon, proprietors of Real Development Corp., were in Wichita for a preliminary hearing pertaining to dozens of counts of fraud alleged by the Kansas securities commissioner.

Judge Ben Burgess, who presided over the all-day hearing, said six days have been reserved for the proceedings. At the end of the preliminary hearing, Burgess will decide whether the case will move to trial.

The charges are being brought in connection with the Kansas Uniform Securities Act.

Beginning during the middle part of the previous decade, Lundberg and Elzufon pursued a number of ambitious downtown Wichita real estate projects, including the purchase of the former Commerce Bank building at 150 N. Main. In all, the pair controlled about 1 million square feet of downtown space.

In 2006, the business partners decided to split four of their buildings in Wichita into floors in order to market them to investors. Following the economic downturn in 2008 and 2009, the Wichita properties controlled by the “Minnesota Guys,” as they are known, began to be bogged down in a series of recriminations, foreclosures, lawsuits and lack of financing.

In court Monday, Randy Mullikin, director of compliance and enforcement for the state Securities Commission, said the securities office decided to bring charges after reviewing information provided by investors – most of them from California – who claimed to have been defrauded.

On the stand, Mullikin testified that the Minnesota developers “misused” money from investors and at one point said that he thought Elzufon had purchased a Bentley automobile with investors’ money.

Elzufon’s lawyer, Kurt Kerns, and Lundberg’s lawyer, Richard Ney, spent much of the day arguing that investors weren’t defrauded and that real estate investments – especially considering the time frame of the transactions just before a hard-hitting national recession – are inherently risky.

Much of the debate in the courtroom was about whether or not lost investments on the Minnesota Guys’ projects constitute securities violations or simply bad luck on potentially risky transactions.

The state’s key witness during Monday’s hearing was San Diego businessman Tom Martinson, who invested in the duo’s Wichita plans and later earned, he said, close to $150,000 in commission payments for bringing in additional investors. Martinson said he was granted immunity by the securities office.

Martinson testified that he was simply a “connector” between the Minnesota developers and their investors and that he is still dealing with financial hardships from the Wichita projects.

This story was originally published November 9, 2015 at 7:51 PM with the headline "Minnesota-based developers appear in Sedgwick County court for preliminary hearing."