Amazon Sues Developer For Racketeering, Fraud Over Data Center Deals After FBI Raid
Amazon has filed a federal lawsuit against one of its former development partners, alleging a fraud and kickback scheme that siphoned millions out of Northern Virginia data center projects and into the defendants' pockets.
In the suit, Amazon says Denver-based Northstar Commercial Partners, CEO Brian Watson and two former Northstar executives conspired with former Amazon real estate executives to direct the tech giant into "sham" bidding processes on at least nine data center leases and attempting to defraud it out of $17M on a property sale in Northern Virginia. BusinessDen, a Denver business publication, first reported the suit.
The suit was filed under seal in the Eastern District of Virginia in April and unsealed this month by Senior Judge Liam O'Grady, who is presiding over the case. Amazon said in court filings that it filed the suit in federal court because it is accusing Northstar, Watson, multiple LLCs, a bank trust and 20 "John Does" of violating federal racketeering laws on the transactions, which span between February 2018 and January 2020.
The lawsuit appears to be related to an FBI investigation into Watson and Northstar, which led to Watson's cellphone and computer being confiscated by federal agents in April. Amazon filed the 11-count lawsuit shortly thereafter, claiming the suit was necessary because of the investigation and statements Watson made that "poses an imminent risk of destruction of evidence, dissipation of assets, and interference with Amazon's business relationships."
Watson's attorney, Brownstein Hyatt Farber Schreck shareholder Stanley Garnett, told Bisnow, "I don’t think Amazon really understands what happened, and we’re vigorously defending the case."
Garnett filed a motion to dismiss last month, claiming Amazon's allegations are "factually incorrect," and arguing that the case belongs in state court, rather than federal. Amazon, which is being represented by D.C. law firm Gibson, Dunn & Crutcher, declined to comment.
Amazon selected Northstar as a development partner in 2017, a designation that allowed Northstar to source, entitle and develop properties Amazon identified as future data centers in Northern Virginia's Data Center Alley. It leases more than 3M SF in Northern Virginia.
Amazon alleges that Watson used his relationship with two unnamed Amazon transaction managers, who were the leads on site selection in Virginia, to win fraudulent requests for proposals for Northstar on at least nine data center build-to-suit deals in Loudoun and Prince William counties.
In total, Amazon said it approved more than $400M in spending requests on the lease transactions at issue.
The lawsuit also outlines a land sale in the Arcola area of Loudoun County in which Amazon Web Services paid $116.4M to White Peaks Capital on the same day White Peaks bought it from an affiliate of JK Moving Services CEO Charles Kuhn for $98.7M, already a $78.6M profit from when Kuhn purchased the 90-acre parcel 13 months earlier.
White Peaks Capital and its affiliate are also defendants in Amazon's suit, and were controlled by two Northstar executives, the lawsuit says.
In an email acquired by BusinessDen, Watson, the 2018 Republican candidate for Colorado treasurer, wrote, “I learned of [the Arcola deal] 2 days before my wedding from an employee, and promptly investigated this. The next day I fired these two thieves and confiscated their business computers and had them escorted from the office.”
Amazon alleges the kickback proceeds from the lease and land deals were funneled into Villanova Trust, another defendant in the suit. Amazon alleges that the transaction managers — one of whom was fired last year, the other this spring — had withdrawal privileges from the trust, set up by a sibling.
Watson wrote in his letter that Villanova Trust was set up to pay a $4K fee to a contractor who introduced him to Amazon, BusinessDen reports, and said that could be a target of the FBI's investigation.
Amazon's suit says Watson referred to the trustee as his "best friend" in an email to a group of his contacts, including the former Amazon transaction managers, defending the dealings as standard commercial real estate practice.
Watson and Northstar have also been sued by a partner in a senior housing deal in Kentucky, who claimed in the suit that Watson is also being investigated by the Securities and Exchange Commission, BusinessDen reports. Garnett declined to comment on either investigation.
Amazon claims that a former Northstar employee tipped it off in 2019 about the alleged scheme of kickbacks worth tens of millions of dollars, providing it with emails and recordings of conversations discussing the leases and property sale. After the FBI investigation was revealed, Northstar Chief Operating Officer Tim Lorman and Chief Financial Officer Brent Gray stepped down.
Documents Amazon filed as exhibits to the lawsuit allegedly show Watson himself signed the deals navigating broker fees and development fees from the deals to Villanova Trust. Rather than immediately firing the two Northstar executives, Amazon claims, Watson executed confidential deals with them to rake in $5M "of their illicit profit on the White Peaks transaction."
Amazon and the majority owner of the nine AWS-leased buildings, IPI Data Center Partners Management, removed Northstar from its minority partnership in the data center portfolio. IPI, a data center investment fund run by ICONIQ Capital, the Silicon Valley wealth management firm run by Divesh Makan that has counted Mark Zuckerberg, Sheryl Sandberg and Jack Dorsey as clients, now owns 100% of the properties.
In Watson's motion, Garnett argues Amazon's claims should be dismissed because it can't show "that either purported scheme resulted in any cognizable harm to Amazon." Garnett also argues that Amazon hasn't sought to claw back the $17M in allegedly fraudulent profits from the Arcola deal, nor has it sought to unwind any of its leases with IPI.
"Amazon was fully aware of the enormous inflation that was taking place with respect to commercial real estate in the market at issue," the motion states. "That Amazon might now feel foolish or chagrined that it did not negotiate a better deal does not give rise to RICO claims."
Watson claims he wasn't party to the transactions at issue, arguing that Amazon is presenting unsigned documents as unfounded evidence of fraud. O'Grady has yet to rule on the motion.
Contact Ethan Rothstein at firstname.lastname@example.org.