A trust for bankrupt investors in USA Capital is trying to trace about $40 million loaned to the developer of the Colt Gateway project
By DANIEL D'AMBROSIO, Hartford Advocate Staff Writer
February 28, 2008
An attempt by a Las Vegas law firm to find out what happened to approximately $40 million loaned by a Las Vegas-based investment company to the developer of Colt Gateway has been dropped until a procedural question concerning the proper venue is settled.
But even though the motion to compel Homes For America Holdings — the Colt developer headed by Robert MacFarlane — to produce records was withdrawn, the investigation is ongoing and the law firm, Lewis and Roca LLP, will likely continue to press for answers once the venue is settled.
All of which suggests that MacFarlane, the man behind Colt Gateway, has not settled affairs with now-bankrupt USA Capital, a principal lender for his attempt to refurbish the old firearms factory that is one of Hartford's most distinguished landmarks.
Earlier this year, MacFarlane assured the Advocate that he had settled with USA Capital. But it now appears that the liquidating trust representing people who lost money when USA Capital failed is wondering where $40 million of their money went. They clearly feel they are missing the documentation from HFAH that would tell them what happened to the money.
MacFarlane could not be reached for comment, and the Department of Economic and Community Development, the state agency working with MacFarlane on Colt, declined to comment beyond saying that the agency had met with HFAH this month, according to spokesman Jim Watson. The project has been stalled for nearly a year.
The trust that is filing the motion against the Colt developer represents investors who lost their money when USA went belly-up. They are trying to get as much of their money back as they can.
The motion, filed on Feb. 12 in U.S. Bankruptcy Court in the District of Nevada, by the USA Commercial Mortgage Company Liquidating Trust, represented by attorney Rob Charles of Lewis and Roca, asked the court to force HFAH to produce "vital accounting records" it needs to trace the $40 million they can't account for in the existing paperwork. HFAH has never repaid the loans, which are listed as "non-performing" in USA Capital's bankruptcy records.
Charles said this week the motion was withdrawn on Feb. 20 — two days before a deadline to produce the documents — after HFAH responded by saying the motion must be filed in Connecticut, not Nevada.
"It's a fair point," said Charles, adding that a Houston law firm working with Lewis and Roca will be handling the venue question.
As an attorney for the liquidating trust, Charles represents the interests of unsecured creditors in USA Capital with hundreds of millions of dollars in claims in the ongoing investigation.
"It's pretty staggering," said Charles.
Construction on Colt Gateway — the centerpiece of a complex of Colt properties that were recommended for National Historic Landmark status in December — ground to a halt nearly a year ago when USA Capital went bankrupt. Since then MacFarlane, co-founder of Yonkers-based HFAH, has blamed his construction woes on the bankrupt lender.
In a story that ran last September, MacFarlane's daughter Rebekah told the Advocate HFAH needed about $10 million from the state to pay off USA Capital and remove the liens it holds on four of the buildings at Colt Gateway so construction could start again. She said HFAH had already poured $14 million of its own money into Colt and couldn't afford to spend any more.
Then last month, MacFarlane said he had settled with USA Capital and several other investors threatening foreclosure for $16 million in cash and stock in his company. He said he had been trying to pay off USA Capital since its bankruptcy, but they were in such turmoil they weren't able to agree among themselves to take his money.
In early December, Colt Gateway got the nod for National Historic Landmark status from a National Park Service advisory committee, virtually guaranteeing official designation in the near future by the Secretary of the Interior. MacFarlane is converting the former Colt firearms factory in the South Meadows into apartments, offices and retail.
The next step will be to push for a National Park built on Hartford's extensive Colt legacy — the factory, the mansion on Wethersfield Avenue, the church and parish house built by Elizabeth Colt, Colt Park, and of course, the unparalleled collection of Colt artifacts and guns at the state historical museum and the Wadsworth Atheneum. That means tourist dollars, as history buffs everywhere add Hartford to their list of must-sees.
Following the good news from Washington, MacFarlane held a coming-out party in Hartford to celebrate. The party at the Polish National Home on Charter Oak Avenue was attended by dignitaries including Mayor Eddie Perez and Gov. M. Jodi Rell, both of whom spoke about the project. Colt Gateway has enjoyed steady support from Rell and Perez and Connecticut's Congressional delegation, especially U.S. Rep. John Larson, who along with Perez testified before the advisory committee about the project's importance to the future of Hartford.
The USACM Liquidating Trust first served subpoenas on HFAH to get records concerning the $40 million in loans on September 7, 2007, then granted a three-week extension, receiving nearly 5,000 pages of documentation in early October.
But the documents turned over to the trust turned out to be an empty paper blizzard, they say. The trust wrote in its Feb. 12 motion: "This production was devoid of any financial records or accounting records evidencing the tens of millions of dollars that were transferred from [USA Commercial Mortgage] ... to HFAH and/or HFAH Affiliates."
In its motion, the trust also made it clear it believes it will be difficult to find out where the money loaned to HFAH went.
"It is undisputed that many of the loans and advances to HFAH and HFAH Affiliates were not fully documented," states the motion. "In addition, the USACM Trust believes that USACM made significant payments to or for the benefit of HFAH and the HFAH Affiliates which are not accurately reflected on USACM's books and records." In other words, the Trust claims that the Las Vegas firm loaned money to MacFarlane without accounting for where or when the money went.
As 2007 drew to a close, the trust continued to try to wring the documents it needed out of HFAH without success, finally proposing a final deadline of Jan. 25, 2008.
When the deadline passed without any additional documents, the trust filed the motion to compel, asking the bankruptcy court to order HFAH to produce the documents within 10 days. But before that deadline arrived, HFAH responded with its contention the motion must be filed in Connecticut.