New York state’s Attorney General has received a complaint accusing HFZ Capital Group’s Ziel Feldman of illegally offering apartments for sale — a violation that, if proven, could get him a lifetime ban on selling condos and co-ops in New York.
The complaint alleges that Feldman offered the units to investors in projects before filing his offering plan with the AG’s office, a source familiar with the matter told The Real Deal. That would be a violation of the state’s broad-reaching anti-fraud Martin Act covering the sale of securities or, in the case of real estate, condos and co-ops.
The complaint names Feldman and his former partner Nir Mier, along with HFZ lenders JPMorgan Chase and CIM Group, according to the source. A spokesperson for Attorney General Tish James confirmed the office received the complaint, but declined to comment further.
Representatives for Feldman and Meir did not immediately respond to requests for comment.
The allegations against HFZ and its lenders claim Feldman and Nir offered investors units in their development projects in exchange for capital contributions before HFZ had submitted its offering plans to the AG’s office. Developers are required to submit the disclosures to state officials before offering units as a way to protect potential buyers.
The complaint also names lenders JPMorgan Chase and CIM Group, claiming they were aware of the violations and turned a blind eye.
A representative for CIM Group said the company could not respond since it had not received a copy of the complaint, and a spokesperson for Chase declined to comment.
The source told TRD that the complaint contains additional allegations, and that James’ office had already been investigating HFZ prior to this complaint.
HFZ is one of New York’s most prolific condo developers, with projects like the $2 billion XI development on the High Line in West Chelsea and the conversion of several pre-war apartment buildings into condos, including the famed Belnord apartments on the Upper West Side.
Along the way, HFZ has been dogged by scandal. For years, Feldman repeatedly denied allegations that he was backed by controversial diamond magnate Beny Steinmetz. But TRD recently uncovered documents that show Steinmetz’s investment in HFZ’s Belnord project.
But the company’s critics say responsibility also lies with HFZ’s lenders, which they say were aware of the developer’s wrongdoings and facilitated them by ignoring the problem.
One investor, New York-based Arel Capital, recently filed a lawsuit alleging that JPMorgan, a lender on HFZ’s XI development, pressured the developer to divert money from its conversion projects to the struggling West Chelsea project.
The Martin Act, meanwhile, gives the New York Attorney General broad powers to investigate fraud. Former AG Eliot Spitzer used it frequently to investigate Wall Street, as did his successor Eric Schneiderman.
In 2015, Schneiderman used the Martin Act to reach an agreement with architect-turned developer Peter Moore, who had been accused of offering syndications in a Tribeca condo development at 39 Lispenard Street some time in 2011 before filing his proper paperwork with the AG’s office.
As part of the settlement, Moore agreed to pay a $50,000 fine and was banned from selling condos for a period of six months.