AG hits Levy with fraud suit a

New York /
Jun.June 09, 2010 02:17 PM

Rector Square and Yair Levy

(Updated: 5:10 p.m. with comment from Yair Levy and YL Rector Street LLC)
Attorney General Andrew Cuomo filed suit against embattled developer
Yair Levy for $7.4 million, alleging he underfunded and illegally
withdrew millions of dollars from the reserve fund at the Rector Square condominium in Battery Park City and used it for personal and unrelated business expenses.

The civil suit, filed in New York State Supreme Court today, seeks restitution, damages and penalties and to bar Levy from selling condominiums and other securities in the future statewide.

“It is unconscionable that the developer pocketed a fund established to protect residents,” said Cuomo, in a statement. “Today’s lawsuit sends a clear message to property developers that deception and fraud will not be tolerated.”

Cuomo, who launched a probe in July 2009, alleged that Levy illegally withdrew more than $1.6 million from the reserve fund and failed to make other required contributions, while writing checks for credit card bills, wireless phone payments and payments to his son-in-law, Dan Deutsch, according to the complaint. The suit alleges the developer also failed to make a mandatory initial contribution of $2.4 million, which is comprised of 1 percent of the total sales proceeds.

By the time the funds were spent, only $70 was left in the reserve fund, the suit alleges.

Reserve funds include proceeds from 3 percent of each unit sale, and are supposed to be held for major capital expenses, like heating and cooling repairs or other emergency uses. Asked if the case had been referred for criminal prosecution, a spokesman for the AG called the case an “ongoing investigation.” Spending reserve funds is a crime in New York City.

Levy filed the offering plan in 2007 to convert the 303-unit rental building at 225 Rector Place into a condominium. In 2009, Anglo Irish Bank filed suit to foreclose on the property after Levy defaulted on hundreds of millions of dollars in loan payments and failed to make months of PILOT payments to the Battery Park City Authority.

Marc Held, who represents 46 unit owners in a $100 million fraud suit against Levy and others at the property, said the buyers are pleased that their concerns were addressed by the AG‘s office.

“The unit owners are gratified that the Attorney Generals’ office has found merit in their complaints and have taken action against the Sponsor to hold the Sponsor accountable for his actions,” said Held, whose clients first complained about the reserve fund in February 2009. “Developers across New York State must understand that the reserve fund of a building is solely for the benefit of the unit owners and not for the personal use of its wealthy developers.”

Yair Levy and YL Rector Street LLC, the sponsor for Rector Square, said, in a statement through a spokesperson:

“Yair Levy and YL Rector Street LLC are deeply disappointed that the attorney general has decided to commit its resources to this proceeding. We have cooperated fully with the attorney general’s investigation of this matter and have responded to all of its inquiries. We categorically deny the allegations made by the attorney general, but reserve further comment until we conclude our review of the claims made.”

Starr Associates attorney Andrea Roschelle, who represents Levy regarding Rector Square, was not immediately available for comment. Attorney David Segal, who last month withdrew as counsel for Levy, declined to comment, as did Stuart Saft, the attorney who represented Levy during the initial Rector Square offering. Deutsch was not immediately available for comment.

 

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