Scam Impact Felt From L.A. to N.Y. : Fraud: Tax benefits were promised in rehabilitation of historic buildings. Instead, millions disappeared into what officials are calling ‘a black hole.’
From a penthouse suite in Beverly Hills, Mark Roy Anderson reigned over an empire of historic landmarks across the nation.
Young, confident and charming, the Encino resident controlled 20 limited partnerships that promised federal tax benefits to investors who funded the rehabilitation of historic buildings.
In three years, 1,500 investors helped him raise nearly $50 million.
But in the end, Anderson’s kingdom came tumbling down with a thud heard from Santa Monica to Millbrook, N.Y.
Buildings supposedly under rehabilitation, such as Millbrook’s Carnegie Mansion, had barely been touched by remodeling crews--or had not been touched at all. And the millions raised to restore the properties disappeared into what federal authorities have called a “black hole.”
“The money was basically squandered,” said U.S. Atty. Jean Kawahara.
Anderson, 37, pleaded no contest in July to two counts of fraud. He was given a seven-year sentence and ordered to pay $6.7 million in restitution to his victims.
As Anderson sits in a federal prison, authorities are still struggling to chart the complex financial machinations that allowed him to carry out what they believe is the first case of fraud involving a federal tax program aimed at protecting historic buildings.
Reverberations of the Ponzi-like scam linger--and promise to do so for years.
Not only did investors lose their money but some also are still in trouble with the IRS, which says their investments no longer qualify as tax deductions.
An accounting firm and a law firm that worked with Anderson are facing a class-action lawsuit by angry investors.
And some of the buildings that were supposed to be restored were instead stripped of ornate hardware and fixtures, leaving them in worse condition than before Anderson entered the scene, said Tom Coleman, the court-appointed receiver charged with untangling the mess.
With the benefit of hindsight, fraud victims often see early warning signs that should have alerted them to the deception, authorities said.
But in the case of Anderson’s Marlin Properties, the moral of the story seems to be that there are times when investors simply cannot know.
The fact that the scam was based on a new and little-known federal tax credit, combined with Anderson’s professionalism, created a unique set of factors that made discovery of the fraud difficult, authorities said.
Anderson declined to be interviewed, but in court records his attorney, Victor B. Kenton, argued that the enterprise was not a scam:
“The Marlin syndications were not designed as a ‘Ponzi scheme’ or to otherwise defraud investors. At the time the project began . . . Mr. Anderson was a quite young, inexperienced individual in the area of real estate.”
Anderson forged a far different professional image for himself, say Coleman, prosecutors and his former associates.
According to court documents, “Anderson developed for himself a fictitious track record, claiming to have created more than 150 highly successful historic rehabilitation projects involving hundreds of millions of dollars with highly favorable results.’
He also claimed to be an attorney and to have testified before Congress as an expert on historic buildings, “which was completely false,” Coleman said. He was never licensed to practice law in California.
Anderson did, however, graduate from McGeorge Law School in Sacramento in the late 1970s and was admitted to the Nevada State Bar in 1981.
Anderson worked for at least one investment firm before he launched Marlin Properties in 1984, laying out a simple proposition for investors:
Anderson was to purchase dilapidated historic sites, from office towers to theaters, and then return them to their former glory.
According to court documents, Anderson not only promised investors substantial tax benefits, he also offered them partial ownership of the remodeled buildings, which he said were listed in the National Registry of Historic Places.
In some cases, such as remodeled office buildings, the investors were to receive a share of the rental payments. Investors also were promised a 100% return on their investments in 10 years.
“They really painted a pretty picture,” said an elderly San Fernando woman who lost $15,000. “They indicated that we couldn’t possibly lose anything and that we’d be able to gain a substantial amount of money.”
In business meetings and social gatherings, former business associates and friends said, Anderson was personable and articulate, exuding infectious confidence.
“Mark is brilliant,” a former business associate said. “I liked the guy. I hate what he did, but he was a very likable guy. . . . If you met him you’d like him.”
“He has such a warm personality,” said Raoul Fima of Agoura Hills, who invested in another troubled Anderson enterprise. “He wined and dined me. . . . He was molding me, convincing me.”
To Fima and others, Anderson appeared to be a millionaire, a high roller who drove a Mercedes-Benz, lived in lavish homes and spoke of negotiating deals with Donald Trump. But Anderson also was a family man. His wife, Janus, was a homemaker who cared for the couple’s three sons, “and rode horses all day,” a former business associate said.
Anderson spelled out his investment program in an elaborate prospectus. The nearly inch-thick, spiral-bound document contained financial forecasts reviewed by Pannell Kerr Forster, an accounting firm, and a report on the potential tax benefits for investors by Blum & Pflug, a legal firm.
Then Anderson formed the partnerships, each composed of 50 to 150 investors.
He boasted of holdings across the nation--the Fox Theater in Oakland, the Firestone Building in Kansas City, Mo., and the New York Chamber of Commerce building in Manhattan.
In the Los Angeles area, Anderson’s company owned four--the Los Angeles Union Bank Building downtown, the El Rey Hotel in Old Pasadena, the Crocker Bank Building in Santa Monica and the Hollywood Guaranty Building.
At its height, Anderson’s company employed 40 in-house salespeople. According to court records, some investors received statements claiming that restoration work was “progressing satisfactorily.” Others received reports giving them the go-ahead to write off the investments on tax returns.
Some even began receiving small dividend checks.
But in 1986 the Marlin facade began to crumble. A group of brokers from Texas representing about 50 investors became concerned after Marlin failed to send out status reports on their property. The brokers visited Anderson and were assured that the reports would be sent soon, said Curtis Swinson, a Dallas attorney hired by the brokers. Four weeks passed. No documents arrived.
“I suspected that something wasn’t quite right,” Swinson said. “So we started really digging.”
The deception became clear when a newly hired Anderson employee gave Swinson an internal memo that showed that many of the restoration projects had no permanent or interim financing.
“When I saw that, I knew we had a problem,” Swinson said.
Also that year an investor from California happened to be traveling in Kansas City and decided to drive by the Firestone Building, expecting to see a newly renovated building.
Instead, “he saw an old moldering warehouse covered with soot and grime, and he realized he had been had,” Coleman said. The investor complained to authorities.
So did the Texas brokers, who contacted the Securities and Exchange Commission and the state Department of Corporations. The department launched an undercover investigation that indicated the enterprise was a fraud, said Dorene B. Wolf, senior attorney with the DOC.
Armed with a judicial order placing the business in receivership, Coleman--accompanied by three Beverly Hills police officers--seized Anderson’s offices on Dec. 1, 1986. “He couldn’t believe that this was happening,” Coleman recalled.
After questioning, Anderson and his staff were ordered to leave. After they were gone, Coleman had the locks changed.
Investigators then began sifting through the rubble of Marlin Properties.
There was “an enormous quantity of records that were practically in a complete state of disarray,” Coleman said. “They were scattered on the floor, in the chairs, all over desks. . . . When I took over, out of all the millions of dollars there was only $17,000 left.”
Coleman traveled to 17 buildings supposedly being renovated by Anderson’s partnerships. In many cases, work had not been done at all. In other instances, a facade or lobby was refurbished to suggest that more extensive work was under way, Coleman said.
In the case of the Fox Theater in Oakland, the partnership had never even purchased the building.
Now, five years later, accountants and investors still have no idea where much of the money raised by Anderson ended up. Some suggest Anderson stashed it overseas. Others speculate that he used it to purchase insurance policies that will be cashed when he is released from jail.
“The ultimate destination of a lot of the money simply cannot be known,” Coleman said.
Wolf has her own theory: “It was a totally fraudulent offering from the beginning. Anderson used the money for his own use to make himself and his family comfortable.”
Accountants suspect that the operation worked this way:
Shortly before Anderson purchased a building for a partnership, one of his associates would arrange to buy the same building first and artificially inflate its value. Anderson would present that new value as the sale price to his investors. The middleman then would use the money raised by the partnership to buy the building at the original low price and split the difference with Anderson, Coleman said.
In other cases, money earmarked for one partnership would go to others or to service debts unrelated to the rehabilitation projects.
“Each partnership’s money was supposed to be kept segregated,” said Kawahara, who prosecuted Anderson. Instead, “everybody’s money was being used for any purpose.”
While investigators spent years reviewing records, Anderson went on to found other enterprises. He was indicted this year.
In court records following his indictment, Anderson, once known for his lavish lifestyle, claimed an income of $3,000 a month and listed his car as a 1969 Datsun. No other Marlin employees were indicted.
As for the investors, some filed a lawsuit to recoup their losses and agreed in 1989 to accept a $4.5-million settlement with Marlin’s insurance companies and some of its former employees.
But the investors have yet to receive a cent because Pannell Kerr Forster and Blum & Pflug have filed an appeal, which is still pending.
Meanwhile, Coleman, in his capacity as receiver, and two investors filed a lawsuit against the accounting and legal firms arguing that they are liable for the investors’ losses because they approved Anderson’s financial documents.
An attorney representing Pannell Kerr Forster, Michael D. Dempsey, said the firm simply reviewed Marlin’s financial forecasts. It did not create the forecasts and was not responsible for their outcome.
“If there was any wrongdoing, and it’s not at all clear that there was, . . . it certainly wasn’t by the accountants or by the lawyers,” Dempsey said.
A week after Anderson was sentenced in the historic building scam, he pleaded no contest to 11 counts of felony grand theft, forgery and preparing false documents in a separate real estate scam involving companies created after the fall of Marlin Properties.
He was given a sentence of nearly seven years, which he is serving concurrently with his federal sentence, and ordered to repay his victims $675,000.
An Investment Scheme Crumbles
Here are some of the buildings involved in Mark Roy Anderson’s investment scheme:
* Crocker Bank Building, 225 Santa Monica Blvd., Santa Monica
Not on National Registry of Historic Places but historically significant in Santa Monica. An example of Zig Zag Modern architecture, it was for many years the tallest office building in the city. A total of $3.7 million was raised from investors. None of it was spent on rehabilitation.
* Los Angeles Union Bank, Hill and 8th streets, Los Angeles
Built in 1922, altered in 1927. A two-story Renaissance Revival structure with terra-cotta detailing. Designed by well-known architect Aleck Curlett. Investors contributed $8 million, of which $50,000 was spent on rehabilitation.
* El Rey Hotel, Raymond Avenue and Green Street, Pasadena
Built in 1902, remodeled in the 1920s. Art Deco detailing. Located in the Old Pasadena Historic District. A total of $1.2 million was raised from investors. None of it was spent on rehabilitation
* Carnegie Mansion, Millbrook, N.Y.
Investors contributed $1 million. No money spent on rehabilitation.
