Owners of a Tucson development firm face two investor lawsuits after they were accused by an arbitrator of ripping off investors.
The investors sued the owners of the Gadsden Company following an August ruling by an arbitrator who said the Tucson-based firm had “committed acts constituting bad faith, fraud, willful misconduct and intentional misappropriation of funds,” AZCentral reported.
The lawsuits filed by two investment firms in Pima County Superior Court accused Gadsden founders Adam Weinstein and Gerald Dixon, and the companies they control, of fraud.
Weinstein and Dixon and their spouses failed to contribute the agreed-upon assets to two different apartment developments in Tucson, while still retaining majority control of the businesses, according to the complaints.
Gadsden Company maintains it never defrauded anyone.
“We don’t believe there was any fraud committed,” Dennis Wilenchik, an attorney who represents Gadsden, told AZCentral. He said the ruling by arbitrator Richard Mahrle was flawed, but there’s no way to appeal it.
The arbitration and subsequent lawsuits focus on investor Allen Sands’ battle with the developers of the Mercado District, a shopping and restaurant hub in a historic neighborhood west of Downtown Tucson, 115 miles east of Phoenix.
Gadsden’s projects include the popular MSA Annex, the Mercado San Agustin and Bautista, a $110 million mixed-use development now under construction. Weinstein, Dixon and their spouses also control Monier Investors Member, a limited liability company that runs the Monier Apartments, a market-rate apartment building in the Mercado District.
Sands manages a pair of investment companies that did business with Weinstein and Dixon: AWS Opportunity Funds I, which funded a Gadsden project; and IB New Ventures, which partnered with Monier.
Last summer, Mahrle awarded Sands’ AWS Opportunity Funds I more than $3.4 million, plus pre- and post-judgment interest and $1 million in punitive damages. He found Gadsden committed fraud, intentional misconduct, and intentionally misappropriated funds.
The case centers on a 59-unit apartment complex known as Menlo Park Towers, slated to be built at 115 South Linda Avenue in Tucson. In 2021, Weinstein and Dixon proposed AWS and Gadsden form a third company, Block F Investors, for the project.
In February 2022, AWS wired $3.37 million to Block F, which Gadsden managed. Gadsden agreed to contribute land valued at $2.3 million, plus $1.06 million in cash, according to AZCentral.
But Mahrle found Gadsden never made that cash contribution and used AWS money to pay for the land. In the ensuing months, Block F didn’t provide AWS with monthly financial statements or progress reports of the project.
After a May 2023 court order to allow an inspection of financial records, AWS found that within three months of wiring the funds, the money was diverted to other projects or expenses.
That left Block F “with nothing but raw land and no money to develop it,” according to the AWS complaint.
Those funds were used to pay off a lien on the land for the project, plus cover the salaries of Weinstein and his wife, personal expenses made by Dixon and Weinstein, and Gadsden’s payroll, court records show. Funds were also transferred to Weinstein and other related companies under the “guise” of loans, according to the attorney for AWS, cited in the complaint.
The court appointed a receiver over Block F in February of last year. In September, the court granted the receiver permission to sell the land to a buyer for around $1.6 million.
While the arbitration case involved Block F and Gadsden, AWS is also suing Weinstein, Dixon and their spouses in Pima County to hold them personally liable for damages.
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