UPDATED, 4:16 p.m., April 14: For an ambitious real estate tech startup, bringing on a well-connected former governor as an adviser sounds like a match made in heaven. But in the case of iFunding and former New York Gov. David Paterson, the marriage quickly turned sour.
A year after the real estate crowdfunding startup announced New York’s former governor had joined its board, the two sides are no longer on speaking terms. Instead, they have exchanged a series of bizarre accusations, involving questionable EB-5 deals, an alleged travel ban and supposedly dire financial straits. Taken together, they paint a picture of all that can go wrong when a fledgling startup and a career politician partner up.
This much is clear: In March 2014, Paterson signed an agreement to become a consultant for iFunding. A copy of the contract reviewed by The Real Deal shows that Paterson was to be paid $5,000 per month in exchange for at least 10 hours of work per week. That comes to a maximum of $125 per hour, less than what a junior attorney at a New York law firm typically bills.
The agreement, which was reported in TRD at the time, was a coup for the startup and seemed poised to turn iFunding’s fortunes around.
Founded in 2012 by Sohin Shah and William Skelley, the New York-based firm had been an early leader in the nascent real estate crowdfunding space. As late as last March, the firm claimed to be the most popular platform among U.S. investors, with more than $20 million in total investment volume raised domestically. It had announced plans to fund a $250 million condominium tower at 90-94 Fulton Street. To the casual observer, it seemed like iFunding was poised to become a headline act in the crowdfunding space.
But, in fact, it had already begun losing momentum. The Fulton Street project quickly unraveled. Rival crowdfunding startups Fundrise, Realty Mogul and Patch of Land proved more adept at building ties to influential real estate executives and investors, and started clawing ahead.
Wooing Paterson, with his extensive connections in politics and business, was iFunding’s shot at distinguishing itself. The former governor would build connections to lawmakers and work on affordable housing initiatives. Skelley and Shah also wanted to tap into Paterson’s experience in raising Chinese capital for New York construction projects, and saw him as their rainmaker in China. That was the plan, at least.
Instead, the partnership quickly unraveled. And this is where the accounts begin to differ.
According to iFunding’s initial version of events, the entrepreneurs planned to send Paterson to a conference in China, but then discovered that he couldn’t enter the country because of ongoing legal troubles. Skelley and Shah instantly decided to terminate the agreement, they claim, and told Paterson’s secretary as much. They also claim that they were unable to reach Paterson because he was ignoring their calls. “Our legal team immediately said this isn’t someone we want to work with,” Skelley recalled in a phone conversation with TRD.
iFunding’s allegations seem to fall in line with the former governor’s image as someone who regularly flirts with scandal. Paterson assumed the governorship in March 2008 following Eliot Spitzer’s outing as “Client 9” in a prostitution scandal and held the post until Andrew Cuomo took office in January 2011. He became New York’s first African-American and legally blind governor. But his brief term was mired by allegations of witness tampering and improper use of his office to secure perks such as World Series tickets.
After Paterson left Albany to become a professor at Touro College, scandal followed him to New York City. In April 2014, just before he joined iFunding, Touro reached a settlement with a former lover of Paterson, Pamela Bane, who claimed Paterson had fired her as his assistant after their relationship soured.
The alleged legal troubles that Skelley referred to concern Paterson’s work in China. In 2011, Paterson began traveling there to court investors for the New York Immigration Fund, a firm that specializes in procuring foreign investors for New York real estate projects through the EB-5 program. One of the projects he raised capital for was for a new Times Square Hotel at 400 West 42nd Street.
Paterson acknowledged that in 2012, the Chinese state news outlet CCTV reported that some of the fund’s Chinese investors complained about delays in the hotel’s construction (work on the project has since begun). TRD could not immediately confirm that such a news report exists. At any rate, Paterson claims that the complaints concerned the immigration fund, not his work for it. Moreover, he claims that he traveled to China several times in 2013 and 2014 and never encountered any difficulties.
Instead, Paterson offers a markedly different account of his split with iFunding. He said he was only paid for his first month at the firm and by the time of the split, in July 2014, was owed two months in pay. When Skelley and Shah told him he couldn’t travel to China, he claims to have contacted the Chinese consulate and received confirmation that he could, in fact, visit the country.
“They probably just didn’t have the money to pay me and came up with this bogus story,” Paterson told TRD on Monday. “Believe me, if you did anything (illegal) in China, you would know.”
Paterson rubbished Skelley’s account and claimed he repeatedly tried to contact iFunding’s founders, only to have his calls ignored. He described the firm’s conduct as “unprofessional” and “dishonest.”
“When they said they called me and I never returned their calls: why would I not respond if they owe me money?” he added.
When TRD asked Skelley if he had any evidence that Paterson was at any point not allowed to enter China, Skelley answered by email: “No I do not have any evidence. Obviously I was mistaken. I apologize for misspeaking.”
Asked if the contract with Paterson was ever officially terminated following their falling out in July 2014, he responded: “It was a long time ago and I don’t really remember.”
Correction: A previous version of this story incorrectly described a legal settlement with Pamela Bane. Bane reached a settlement with Touro College, not Paterson.