California Landlord Fraud Suits Tied To Regional Banks' Market Wobbles
The rocky trading days for regional banks last week can be traced at least in part to a defunct California landlord’s overleveraged projects.
Regional bank stocks fell sharply before mostly recovering last week after Zions Bank and Western Alliance Bank separately reported potential losses stretching into the tens of millions of dollars related to loan defaults.
In a lawsuit filed Oct. 15, Zions listed 16 addresses that had served as collateral for a $60M loan, six of which were listed as assets with California-based real estate firm MOM CA Investco LLC when that firm filed for bankruptcy in February, Bloomberg first reported.
In a separate suit, Phoenix-based Western Alliance is suing the same investor group alleging they manipulated loan structures and misled the lender in a way that prevented it from being first in line to recover funds in the case of a default.
The Zions case, filed by subsidiary California Bank & Trust in Los Angeles County Superior Court, also names local landlord Gerald Marcil, Andrew Stupin and Deba Shyam as defendants. Western Alliance is suing an investor group that includes Marcil and Stupin.
Salt Lake-based Zions and Western Alliance had both looked to secure their place at the front of the repayment queue when the bankruptcy of MOM CA Investco triggered the sale of assets to repay creditors.
Zions declined Bloomberg’s request for comment and didn’t respond to a request from Bisnow Monday morning. Western Alliance declined to comment on pending litigation. An attorney representing Marcil and Stupin told Bloomberg his clients vehemently denied the claims in the suit.
Western Alliance said in court filings that it is owed nearly $100M after it claims it was misled by an investor group that included Marcil and Stupin, who allegedly hid that some of the properties put up as collateral were already in foreclosure.
The Zions Bank affiliate discovered other lenders held liens on several properties that were slated for sale as part of the MOM CA Investco bankruptcy, effectively putting the regional bank further back in the line of repayment.
The now-defunct investment firm was founded in 2021 by Mohammad Honarkar and Mahender Makhijani, who also ran a firm called Continuum Analytics that acquired and managed distressed real estate. Marcil and Stupin were among its largest investors, according to Bloomberg.
The partnership fell apart amid fraud accusations, with Makhijani sending armed guards to take over some properties. He also hired mobile billboards to drive around Laguna Beach, California, where the joint venture owned a hotel, with signage accusing Honarkar and city employees of corruption.
The Chapter 11 bankruptcy case was dismissed by a judge in August after the investment group was unable to agree to reorganization terms. With the case dismissed, creditors are now filing claims to seize and sell properties.
Jamie Dimon, the outspoken CEO of JPMorgan Chase, shook some investors' confidence last week with a warning about bad loans being uncovered across regional banks.
“When you see one cockroach, there are probably more. And so we should—everyone should be forewarned on this one,” he said on the firm’s third-quarter earnings call last week.
