Capital Flight

Since 2011, the Detroit Police and Fire Retirement System has appointed four receivers to collect on a $10-million unpaid loan to repair and sell homes to low-income buyers. After discovering an elaborate Ponzi scheme and filing multiple lawsuits against the three debtors, one partner committed suicide while the other two fled and are thought to be in Panama.


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 When 60 Detroit houses popped up for sale on eBay in August, it was only fitting that the properties, remnants of a $10-million scam on a city pension fund, found few takers. In fact, none of the 60 dwellings, many of them in the reviving Boston Edison neighborhood, drew any buyers.

The listing of the homes, many of which were saddled with large amounts of delinquent taxes, offered the most recent public glimpse of a protracted legal battle buried for years in thousands of pages and boxes of old files in Wayne County Circuit Court, as well as in files in state and federal courts nationwide.

Just as the Internet auction came up empty, lawsuits by the Detroit Police and Fire Retirement System have been mostly unsuccessful in recovering the $10 million trustees loaned in 2008 to Detroit businessman Abner McWhorter and his Paramount Limited company.

Within two years the loan was in default and in May 2011, the pension fund filed suit against McWhorter and his two partners. Two months later, McWhorter filed for Chapter 11 bankruptcy. Five weeks later, he was found shot to death — a suicide, according to the Wayne County medical examiner.

Also named in the lawsuit were McWhorter’s partners, George and Teresa Kastanes from South Carolina, who fled to exotic hideouts in the Caribbean and Central America amid accusations of fraud. George Kastanes also filed for bankruptcy protection in Miami; he was arrested there in 2012 after a judge issued a warrant for ducking the Wayne County lawsuit filed by the police and fire fund. He was later released.

A federal bankruptcy court in Miami would eventually rule that the revitalization plan McWhorter sold to the pension trustees was merely a Ponzi scheme. The court said the partners were initially repaid a part of the loan with money they received from the fund.  

The 60 homes advertised on the website in August, priced between $9,400 and $50,000, are a fraction of the 1,400 Detroit distressed properties that were purchased with pension fund money. The police and fire trustees initially declined to invest in Paramount, but then loaned the money on the sales pitch that it would revitalize neighborhoods while helping Detroiters in need of affordable housing.

Instead of helping, however, the vast majority of the homes bought with the pension funds were temporarily recycled out of foreclosure only to be abandoned or destroyed within months, exacerbating Detroit’s massive foreclosure and blight problems. The 1,400 Detroit homes are also nearly one-half of 2,500 similar properties the partners purchased in 30 other states using the police and fire pension fund’s money that was earmarked to help Detroiters.

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