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Bellevue real estate firm ran a Ponzi scheme, say bankruptcy filings

By Heidi Groover, The Seattle Times
Published: February 29, 2024, 8:35am

SEATTLE — A Bellevue-based real estate investment firm that allegedly failed to repay hundreds of investors operated a Ponzi scheme, the third-party company now overseeing the firm contends in recent bankruptcy filings.

Founded in 2011, investment firm iCap raised money promising to invest in Seattle-area real estate projects. But after the firm allegedly extended timelines for repaying investors and stopped paying monthly interest payments, some investors sued iCap last year in King County Superior Court. ICap filed for Chapter 11 bankruptcy in September and the restructuring company Paladin took over.

In bankruptcy court filings late last week, Paladin and attorneys representing iCap investors together asked the court to agree that iCap ran a Ponzi scheme.

The conclusion “is based on overwhelming evidence,” Chief Restructuring Officer Lance Miller said in a statement to The Seattle Times. “Court recognition of this conclusion will materially expedite and support our ongoing efforts toward a favorable outcome.”

Chris Christensen, who founded the company and stepped down as CEO in September, disputed the description of his business as a Ponzi scheme.

“Mr. Christensen strongly disputes the allegation that iCap operated as a Ponzi scheme,” Christensen’s attorneys said in a statement to The Seattle Times. “Mr. Christensen will submit his evidence and argument to the Court at the appropriate time.”

According to bankruptcy filings, iCap owes 1,800 investors a total of $250 million. Investors included Chinese citizens and Chinese Americans, who lawsuits allege the company targeted for investment. The bankruptcy process and other lawsuits will determine whether investors — and other entities, including local governments owed property taxes — will ever see repayment. The company appeared to own at least 10 Washington properties, some of which remain undeveloped despite promises to investors, lawsuits allege.

A Ponzi scheme generally refers to “an investor fraud scheme in which some or all of the returns generated from an investment are not legitimate and are merely transfers of funds from new investors to existing investors,” wrote Jeffrey Kinrich, an accountant and consultant hired to review iCap’s internal records, in a declaration filed Friday.

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In the five years before the company filed for bankruptcy, most of iCap’s funds came from investors, rather than from real estate projects, and the company used most of its money to make payments to investors, rather than investing in real estate, a pattern that is “highly indicative of a Ponzi scheme,” Kinrich wrote.

Between 2013 and 2022, iCap invested $103 million in real estate projects and received $104.4 million “upon exiting the projects,” Kinrich wrote, “an astonishingly low total net return of only $1.4 million.”

That low return “implies that [iCap] would not have been able to pay off the investors from the appreciation in its real estate investments, but had to use funds raised from others,” Kinrich wrote. “This is highly indicative of a Ponzi scheme.”

In another declaration, Miller, the chief restructuring officer, offered a similar conclusion: “In reality, fundraising new debt was the company’s business; real estate development was an incidental activity.”

Investor Lilian Tan moved from China to Washington state in 2015. Because she wasn’t working at the time, Tan looked to invest savings from the sale of her home in China and was drawn to iCap’s promise of high interest rates, she said in an interview. From 2020 to 2021, she invested a total of $1 million, money Tan said she planned to use to pay college tuition for her two children. She has not received that money back, she said.

After iCap announced in early 2023 it would stop making monthly interest payments, Tan sued the company in King County Superior Court and now represents a committee of investors in the bankruptcy process.

“I believe the 1,800 investors are all ordinary individuals, honest individuals. They put their hard-earned money into this investment,” Tan said in an interview Wednesday.

Investors “trusted iCap,” she said. “They never thought they [were] investing into a Ponzi scheme.”

The company now running iCap and the committee representing investors may attempt to sue Christensen and Umpqua, the bank iCap used, according to court filings.

They may also pursue claims related to the sale of a Renton apartment building. According to county property records, an LLC affiliated with iCap sold that six-story apartment building for $44 million in July, two months before iCap filed for bankruptcy. The buyers included an LLC affiliated with Christensen’s brother, Jim. Two lawsuits in King County Superior Court last year initially named Jim Christensen, but attorneys representing the investors later dismissed him from those cases.

Umpqua Bank, Jim Christensen and the other buyers of the Renton building either declined to comment or did not respond to requests for comment.

The recent filings are a “positive step toward achieving full accountability,” John Bender, an attorney representing the committee of investors, said in a statement to The Seattle Times. “But by no means is our work finished.” Those working on the bankruptcy are “committed to continuing to identify and recover every penny that was taken from over 1,800 victims and return those funds to their rightful owners as quickly and efficiently as possible,” Bender said.

A hearing in the case is set for March 27.