Investor allege inappropriate activities in trust accounts
By Itzhak Dannon
Members of the national executive committee of Global Paragon investors, which represents 450 investors who had invested about NIS100 million in 10 real estate projects (all multi-family housing) the company marketed in the U.S., especially in Houston, Texas, have filed suit in the Tel Aviv District Court. They are seeking a declaration stating that certain trust accounts at Israel’s First International Bank, in the names of two attorneys: Yaron Cohen, an executive and partner of the Global Paragon, and Alon Solomon, also a partner and the company executive in charge of its activities in the U.S., are held in constructive trust by the two for the benefit of the investors.
In addition, the court has been petitioned to allow the investors access to those accounts, into which their investments, they allege, were rerouted. The lawsuit avers that about half of the funds invested, about NIS 50 million, were stolen by either attorney or jointly by both. The claim states that, over the years, Global Paragon’s owners (the fore-mentioned attorneys) have reported that the financial condition of the various projects was satisfactory, asserting that the properties’ values were rising, submitting regular reports to the investors reflecting such growth in both value and occupancy. The reports also described the activities undertaken by management (i.e., the two attorneys) in order to maintain and improve the assets. Indeed, profits were distributed to the investors on quarterly basis.
However, two months ago, the quarterly reports did not arrive when they were due. Instead, in a written notice that perplexed the investors, attorney Cohen disclosed the following:
“For some time now Global Paragon has been experiencing economic hardship and its condition has worsened to the point of having real difficulties in maintaining ongoing, proper management of the assets in the long run… we are unable to assure continued, regular and proper management of the assets in the future.”
The petition discloses that the investors found out that the reports they did receive were false, that funds to the tune of NIS 50, 000, 000 have disappeared, that properties were encumbered unlawfully and unbeknown to the investors, etc.
According to the claims in the petition, as the picture resolved into clarity, it turned out that the company owners breached their legal duty to register the investors as the owners of the various properties purchased in the United States. Instead, they formed a separate legal entity for each property and failed to include the investors as the rightful owners of the legal entities, which left them without any legal rights vis a vis the assets. However, as a result of aggressive legal maneuvers made by the executive committee, Global Paragon’s owners agreed to convey the assets to which they had title to the investors.
Now though, a new twist appeared in this winding road: Once they received ownership of the projects, the hapless investors discovered, according to their petition, that the properties were greatly neglected and that funds they handed the two attorneys for upkeep and renovations went missing en route to the projects’ different accounts.
The petition stated that in light of the overwhelming revelations as to the disappearance of funds and fraudulent acts affecting the various projects, representatives of the executive committee filed police complaints against attorneys Cohen & Solomon. According to the investors, Cohen who was the one in charge of all U.S. operations and for the upkeep of the properties, was apparently the driving force behind the acts and omissions amounting to deceit, theft and embezzlement, and till now has failed to provide meaningful data that would disclose the fate of the missing NIS 50 million which were deposited in Global Paragon accounts by the individual investors.
The committee also seeks to establish the liability of the First International Bank in relation to the disappearance of funds. According to the committee, their appeal to First International Bank in order to obtain information about the accounts was turned down, although the bank has acknowledged that the investors are the beneficiaries of the accounts. According to the committee, it has documentary evidence showing that acts of theft and fraud were made in relation to the missing millions, including personal use by the trustees and use of some of the funds on deposit with the bank for the purchase of properties in U.S., personally, by Global Paragon’s owners. The committee finds fault in the bank’s failure to inform the investors of such wrongdoing, affecting funds held in trust on their behalf.
The investors’ representatives allege that the bank averted its eyes while inappropriate activities were taking place in its trust accounts and, in effect, worked hand in hand with the wrongdoers. They also state that the bank has turned a deaf ear to their requests for information as to what had transpired in the accounts, which creates a substantial suspicion that the bank is seeking to hide various movements in and out of the accounts that, it reckons, would establish its liability for the harm caused.
Accordingly, the committee seeks a mandatory injunction ordering the bank to disclose the requisite information and for the court to make findings that the bank had a guardian’s duty, as per the Guardians Law of Israel, in regard to the funds on deposit at its trust accounts. In the event that the information sought would show that the bank bears legal liability for the losses suffered, the committee reserves its right to amend its petition in order to seek rightful redress against the bank.
In a terse response, Attorney Yaron Cohen said that the allegations are specious and only after he will receive the petition would he be able to properly respond.