A federal judge has declared that iCap Equity, accused of bilking hundreds of real estate investors, operated as a Ponzi scheme.
Chief Judge Whitman Holt ruled in a Yakima bankruptcy court that the Bellevue-based investment firm once led by Chris Christensen had defrauded 1,800 investors who sunk $230 million into the firm, the Seattle Times reported.
The finding came as part of a months-long effort to dismantle the firm and look for ways to repay investors. The ruling sets the stage for potential future lawsuits against iCap executives and banks iCap used, and could help investors seek a tax deduction for their losses.
“There is substantial, if not overwhelming, evidence” that the company operated as a Ponzi scheme between 2018 and last year, Holt said.
iCap executives promised for at least 10 years that they would direct investor funds into development projects, including in the Seattle area, while paying investors monthly interest payments, investor attorneys said.
The attorneys allege the firm had targeted Chinese nationals and Chinese American investors.
The company quit making interest payments to investors last spring. The investors sued. And iCap filed for bankruptcy, according to the Times. A restructuring firm took control. After sifting through iCap’s financial records, the firm concluded it had operated as a Ponzi scheme.
Attorneys for Chris Christensen, former CEO for iCap, didn’t present any arguments or evidence in court, and didn’t respond to a request from the Times for comment. They previously told the newspaper that he “strongly disputes the allegation that iCap operated as a Ponzi scheme.”
Christensen’s brother Jim, who worked as chief operating officer, declined to comment to the Times.
No criminal charges have been filed against iCap’s leaders. Christensen’s attorneys said in a court filing this spring that the FBI and the U.S. Securities and Exchange Commission had “opened a criminal investigation into iCap.” Each agency declined to comment.
Between 2013 to 2022, iCap invested $103.4 million in real estate projects and sold developments worth $104.8 million, netting just $1.4 million in profits, far from enough to repay investors, according to Jeffrey Kinrich, a consultant and accountant who reviewed the firm’s internal records and testified in support of the Ponzi scheme allegation.
Holt took note, saying he “was struck by” Kinrich’s testimony about iCap’s “extraordinarily low real rate of return” on real estate projects. “They would have been better off just putting the money in Treasury bonds and letting it sit there,” Holt said.
As iCap collapsed, the company had few assets to sell and generate cash to repay investors, given the high costs of paying for the bankruptcy process. It’s unclear if investors will be repaid. The restructuring company sold 15 iCap-owned properties for $19 million, with several more property sales in the works. No investors have been repaid.
Holt said he hoped that between tax benefits and any returns from future lawsuits, investors would “receive at least part of their investment back.”
— Dana Bartholomew
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