Did I Kill League REIT?

February 1st, 2014 · 16 Comments · League REIT Updates, REIT, SLAPP suit defense

 Did I Kill League REIT?
Foter / Public Domain Mark 1.0

Tim Kiladze of the Globe & Mail has been writing about League. Earlier this year he stopped short of calling them a Ponzi while stating that LISI staff told him they could only fund investor redemptions by finding new investors to invest. It takes a brave journalist to continue reporting when the defamation suits start to fly. His new article is fantastic (mostly because I’m in it and I’m so humble)

Emmanuel Arruda considers me to be part of the “insane clown posse of internet detractors” He’s also quoted as saying the “numbers side of business is not his thing.”  The insane clown posse of internet detractors is given equal importance as the 2008 financial crisis in League’s downfall. Both reasons are completely ridiculous and underscore Emmanuel’s complete lack of understanding of the REIT business model and how it works.

Frankly it doesn’t matter a whit about internet posses. I was sued by League for defamation and every single one of my tenants paid me rent and I turned it over to the owners and no one lost income. Is Emmanuel Arruda claiming that tenants wouldn’t rent space in his 25% vacant cash bleeding malls because of the League Reviewed site? In fact I’m pretty sure there are a lot of people who think I’m crazy and an asshole and even more who actively dislike me, and a few landlords I fired and hundreds of tenants evicted who are not my fans. I still collect rent and provide housing and my business goes on. There is no such thing as a popular landlord.

The credit crisis was in 2008… over 5 years ago, what does that have to do with anything relevant? No one is forcing you to over leverage yourself, or to continue to do deals when it’s unprofitable.

If you’re a landlord it doesn’t matter one single bit what people think, tenants still have to pay you rent or move. So your income should still be secure.

The only thing I did was warn new investors away from his and Gant’s scheme. I couldn’t do one single thing to save the existing investors from them or minimize the impact. Frankly I feel guilty I did too little too late. I mostly only took interest in exposing their own financial statements after they sued me. The only way I could be hurtful to them is if their stated business of real estate was a sham and the majority of their income came from raising funds from new investors. Naive new investors. Fodder for the League grist mill.

Emmanuel claimed I told people to call BCSC about their going public and this ruined their chances. What. A. Steaming. Pile. The whole idea of “going public” is that you actually have a business that generates a return for investors and that it’s so good you need/want to share it with a greater market. In League’s case, they were already broke and many of their investors wanted out because they ceased distributions on their common shares. The whole idea of a public market is that there is someone on the other side that wants to buy. Nothing could be further from the truth and as any REIT that ceased distributions on the public market can tell you… no one wants your crappy non distributing REIT and investors will sell those shares for pennies on the dollar. That is what would have happened with League had it been approved for listing. Penny stock. Arruda and Gant published an article implying that investors would gain 17% on the public market when League went public. What a complete crock of lies and misdirection.

Finally, to any CEO of any company that “doesn’t get the numbers”. What do you think your job is? Maybe wig holder-upper? Toilet holder-downer? Office spacer? Most people would think that a CEO’s job would be interpreting the numbers and providing guidance and direction to the company and employees and investors and shareholders. In your case, obviously that would be wrong, because numbers are not your thing. Maybe you could let a little reality penetrate your woo bullshit and really accept what you’ve done. You and Adam Gant are solely responsible for separating 4200 investors from $370, 000, 000.00.

I may be insane but you’re the clown. 

 

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16 Comments so far ↓

  • wendi1

    Glad you’re back. I was afraid you’d been shut down.

  • Jimmy

    Good article but I challenge your assertion that you raised the red flag in 2008. Allison did all of the initial work and you came on the scene much later in 2011

    • Rachelle

      I didn’t raise the red flag in 2008, I did know they were a scam in 2008 after I ordered their Blue Book and then found the cease trade orders for IGW REIT at the BSCS website.

      It was 2011 before I actually had a reason to say anything, in the comments of my blog post, then later after they ceased distributions the first time on Canadian Money Forum. In fact before the sued me I’d avoided talking about them

      There’s like a million scammy companies out there… way too many for me to fight.

  • Cherry

    Thanks for posting this great article. It seems that Arruda has been winkled out of hiding for an interview, but where has he been all this time? I suspected somewhere in South America – he seemed to have vanished, leaving Gant to carry the can. We haven’t heard a peep out of him.

  • Jimmy

    Apparently Arruda has a marketing job in San Francisco. After he was fired from League he was offered a job by a startup.

  • kristine

    Basically real estate development is the cost of money- the time value of money- versus profit margin. The League in order to attract money fixed the cost of money by promising high rates that was greater than the profit margin. It hid the ongoing losses in something called the NAV- a number pulled from their ass. The Colwood property valuation was a great way to hide the loss but the high NAV also occurred on the other properties.
    They filed various Offering Memorandums that were close to the truth but a sales spiel was developed by management and fed to the sales agents who conned the investors. The spiel ignored the Offering Memorandum. If you call a small sample like 10% of the investors and asked what they were told they will verify that the OM was misrepresented by ignoring it and misdescribing it .( It actually says in the OM that money raised will be used to pay prior investors)
    The BC Securities Commission could have caught the misrepresentation by auditing the exempt distribution by calling the investors as it had their phone numbers-it did not and failed the public.
    This was a fraud pure and simple.Describing it as a Ponzi scheme is too generous.
    The newspaper article is a step in the right direction but is insipid in laying blame. The person who wrote it does not understand how investment fraud works.
    To blame the 2008 crisis is pure self serving B.S. To blame those who shouted the emperor has no clothes is also B.S.
    Claiming a personal loss of money is also B.S. A true person would follow the Japanese model and sacrifice himself in a ceremony of hara- kari. Failing that a pair of cement boots and fall into the San Francisco bay is appropriate.

    • Jimmy

      Given that 90% of new companies fail, having the founders all kill themselves afterwards might be a little tough on the economy!

      The League premise was built on highly leveraging properties, developing them and then flipping them for a profit. How do you think that people make big bucks in real estate? A 10-15% annual return to investors is easily supported in that model. In fact in 2008/2009 almost every public REIT was yielding north of 10% returns. The problem lies in that if you buy property with 10% down and the price goes up 10% you double your money, if it goes down 10% you lose everything. In League’s case prices went down.

      It is not the BCSC’s responsibility to call investors and ask them about their investments. In most cases the BCSC doesn’t even know who the investors are. Aside from Allison and a few others, nobody was complaining to the BCSC in 2007-2012 when distributions were being paid and things looked rosy.

      • aj

        Jimmy, I beg to differ regarding the business plan. In the beginning, yes, that was what their intent was: syndicating properties, NOT building a REIT. The moment they took that leap, it all fell apart. Several of their deals made money early on; as you said above, it was hard NOT to make money back then in real estate. Where your premise falls apart, and where their business plan fell apart, is the fact that they NEVER did a lick of work on any of the projects, which creates the lift. They kept creating new companies, used investor money to purchase the underlying asset for the company, and then over-leveraged that asset. IF they had done the work, perhaps the business model would have succeeded. All they did was take fees, pay for fancy offices and travel, pay expensive lawyers and accountants, and then, worst of all, paid for that POS prospectus.

        I defy anyone with any money in this crap to tell me that they KNEW that Gant was 23 when he started this mess; a failed student and sued property manager. I defy anyone to tell me that if they had known that Arruda’s company was called HugeAss productions, they would have believed all that credo crap.

        Gant and Arruda never created one cent of value in anything they touched.

        • Jimmy

          AJ,

          If I am correct you posted the age and Hugeass productions stuff way back in 2008. Wish I had invested my money with a different 23 yr old in 2007 – Mark Zuckerberg!

          I agree that the business model changed after the real estate collapse, I was just refuting Kristin’s claim that offering 10-15% returns automatically made a real estate deal bogus. Heck for a while back in 2005-2007 I was lending 180 day money out at 15% and making a fortune on flips.

          • aj

            1. Every negative post regarding league non assets was either removed, or the posters banned due to Manny buying ad space on every forum.

            2. I have no problem with Gant being 23. However, I do have a problem with someone who, at 23, claims to hold at least one 4 year degree ( and now Manny is claiming yet another phony ‘degree’ from MIT), and years and years of experience. I guess they started out at 12. They were liars from day one, and I can prove all of it. I cannot wait to get to court. The only way I can possibly get any investor money back is to show the court that they scammed all of these people out of all of their money. I CAN! And then the investors can go after their famous trust accounts. Jimmy, who needs a trust account that isn’t born wealthy, or needs to hide money?

          • Jimmy

            Actually most of the old posts are still there, they are just hard to find since they haven’t been updated for years. Check out this one from 2007. As you have said before, most people never did any due diligence on League until the distributions stopped. Everything you are saying now was talked about starting back in 2006.

            http://www.financialwisdomforum.org/forum/viewtopic.php?p=213585

    • aj

      Case in point regarding creating value: the Rosewood property needs a new roof, new heating, most of the tenants moved out. Great property ‘management’. I would not be the least bit surprised to learn that MOST of the so-called assets are in much the same condition. Gant and Arruda earned fees….for what?

  • Laura

    I don’t know what the bigger issue is here so I should not post but… you stated that tenants must pay rent or move. I wish that were true. My brother rents properties and has had several cases where tenants stop paying rent or any of their bills for the house and they have continued to live there on his dime for almost a year. He is not allowed (by law) to do anything like turning off the power (even though he is stuck with the bill for it) to get them to leave. All the laws are far too much on the side of the tenant. Being a landlord is a huge risk as tenants can cause all the damage they want, bring in livestock, etc and just pick up and leave the landlord to deal with the mess they leave behind and the cost of keeping them for the year they chose not to pay. This has been our experience after renting homes and apartments in homes for over 20 years now, in various towns in Ontario. Renting is not a way to make great money, if you are lucky with tenants you can keep the property balanced with the payments for bills and taxes. One very bad tenant can cost you everything.

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