Slow Market Doomed Real Estate Empire : Business: George Chen’s bankruptcy comes amid branch closings, IRS seizures and accusations of misuse of investor funds.
Before it collapsed two months ago, George Chen’s real estate empire seemed the stuff dreams are made of.
With eight branch offices in the San Gabriel Valley, Orange County and Torrance, and a network of hundreds of Chinese-speaking sales agents, Chen’s George Realty Co. sold hundreds of millions of dollars worth of real estate during the 1980s, marketing homes and condominiums to the region’s burgeoning Asian population.
Pooling capital from investors in Taiwan, Chen formed partnerships and snatched up tracts of raw land in Rancho Cucamonga, Riverside, Orange County and elsewhere.
“People were flocking to him, saying, ‘Put me in some deals. Take my money,’ ” said Chen’s former lawyer, John Chang. “He thought he had the touch of gold.”
But the dreams became a financial nightmare as the Southern California real estate market dried up. Over the past year, Chen shut five of his branches and sold one.
In March, the Internal Revenue Service finished the job, seizing assets at the two remaining George Realty offices for Chen’s alleged failure to pay $140,585 in employee withholding taxes between 1988 and 1991.
Chen has also been accused of mishandling the money of many of his investors. Former employees and associates say that he continued to funnel investors’ money into risky projects even as his business was sliding.
He faces a dozen civil lawsuits and is under investigation by the Los Angeles County district attorney. Officials at the state Department of Real Estate also are looking into the matter.
In March, a bank foreclosed on Chen’s $3.5-million San Marino home. And in late April, Chen filed for liquidation of his assets under Chapter 7 of the U.S. Bankruptcy Code, listing $6.58 million in debts and $9.2 million in assets, including property that has been repossessed.
Chen could not be reached for comment; his bankruptcy lawyer, Charles T. Morrison, said he does not know where Chen is living.
But Chang, who defended Chen in several of the civil cases, described Chen as a quiet, unassuming person whose only mistake was that “he was too busy being a developer and not spending enough time to be a manager. The go-go days of the 1980s aren’t here anymore.”
Some former employees say George Realty’s downfall was nothing more than the consequence of Chen overextending his investments--the kind of mistake that has put many other developers out of business.
“It was a cash-flow problem,” said Tom Crosby, who managed George Realty’s Alhambra office and bought it from Chen in December. Though he has retained the name George Realty, Crosby’s company is unrelated to Chen, he said. “He was sucking cash out of the company to cover bad investments.”
Peter Klika, an attorney for one of the investors suing Chen, said George Realty cut corners in real-estate deals with immigrants and overseas investors unfamiliar with American property law.
“We see a lot of wrongdoing in the Chinese community by people who say, ‘You don’t need escrow companies because we’re all Chinese,’ ” Klika said. “It’s a pitch that’s an appeal to ethnic pride: ‘We don’t need all these formalities.’ ”
Steve Ellis, a state Department of Real Estate official in Los Angeles, would not comment on the George Realty case. But he said: “A lot of money is being shifted into this country, and I’m sure a lot of people are taking advantage of that flow of business.
“It surprises me that people give that kind of money without any guarantees, and give blindly just because they have to ship wealth out of their country. Maybe they have a perception of what America is, that there is security here.”
George Saudi, senior investigator of the district attorney’s major fraud section, said he has received three complaints, all concerning property that was sold by George Realty but never delivered to buyers because Chen was millions of dollars in debt.
In one case, Chen defaulted on a $4-million construction loan for a 14-unit Arcadia condominium project, according to court records. That unpaid debt prompted foreclosure proceedings and blocked the transfer of title to buyers.
“It appears to be fraud,” Saudi said. “(Chen) took down payments and cash and did not deliver title. Intentionally failing to deliver title would be illegal.”
Civil suits claim Chen and his wife never deposited money from the Arcadia condominium sales into an escrow account. One such suit was filed last October by a resident of Taiwan, Shu-Jung Yang, who said she gave the Chens $200,000 toward the purchase of a $390,000 condo.
The Chens “took advantage of plaintiff’s naivete and lack of understanding of real estate matters in California to obtain (the $200,000) . . . to use for their own purposes,” Yang’s suit claims.
A 1991 suit accuses Chen of swindling 20 business partners out of $1.15 million in a Garden Grove land purchase. Chang Sheng Han, one of the partners, claims Chen exaggerated the cost of the land and pocketed the difference.
Chen’s bankruptcy filing delays action on the civil suits.
Yee-Horn Shuai, an attorney who worked for George Realty but later counseled investors who lost money in the company, said that Chen capitalized on his widespread reputation in Taiwan, even after real estate values plunged.
“He had done very well for a brief period of time,” Shuai said. “When word spread among the people, they got hypnotized. That’s the image George Chen created in the minds of the Chinese people. He spent a handsome amount of money for promotional activities.”
John Chang said that Chen “should have faced his problems three or four years ago. The situation would not have gotten this bad. He’s completely cleaned out.”
