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.


Published:

(page 2 of 7)

The fund won judgments against the partners in courts in Miami and Wayne County for amounts that now nearly double the original loan. The trouble is, George and Teresa Kastanes and the more than 17 shell companies they created declared bankruptcy and have no visible assets.

Since 2011, the pension fund, through its lawyer, Marie T. Racine, principal of Racine and Associates in Detroit, has gone through three court-appointed receivers and is now working with a fourth trying to recover some value from the $10 million it lost. The failed attempt to sell the homes on eBay was made by the latest receiver, David Findling, managing partner of The Findling Law Firm in Royal Oak, who was appointed in October 2014 by Wayne County Circuit Court Judge John H. Gillis Jr., at the request of Racine.

Ponzi Scheme

The agent for the properties, Darin McLeskey, says the Internet auction was a “Hail-Mary” effort by Findling to locate buyers before the houses were lost to the county. “It was a last-ditch effort to try and sell some of the houses before Wayne County foreclosed on them,” says McLeskey, a real estate agent at The Loft Warehouse in Detroit. “Some months ago our office looked at them and we figured 10 of the houses could be worth more than the back taxes (owed on them). But since then, the 18 percent interest rate on the back taxes made them go upside down.”

McLeskey says he’s sympathetic to the nearly impossible hurdles Findling faces in trying to get his arms around 1,400 distressed properties in Detroit. He learned firsthand of the problems when he tried to track ownership of a house listed as owned by one of 17 subsidiaries of the defunct Paramount holdings. 

“I know pretty well how to do this, and it took me a month to track down the owner of just this one property,” he says.

While it appears that most of the properties have been lost to foreclosure or abandoned, other than a status report in March by Findling of his preliminary findings — which city sources say showed Paramount’s investment records in disarray — there has been no public accounting of the doomed pension fund investment. Findling did not respond to phone calls for comment for this story.

In fact, none of his predecessors had any success corralling the failed investment. The first receiver, Steven Smith, quit after only a few days due to work conflicts.

The second receiver, James McTevia, founder of McTevia and Associates, a turnaround management and financial consulting firm in Bingham Firms, says he advised the police and fire fund trustees to give it up after nine months, having received little cooperation from the Kastanes. According to McTevia he didn’t get records he asked for. Meanwhile, an FBI-trained expert discovered that 30,000 files in the Kastanes’ computers had been destroyed.

Edit Module
Edit Module Edit Module
Edit ModuleShow Tags

Related Articles

2018 Powered by Women

From reader nominations, DBusiness selected eight professional women who are driving growth in Michigan, the nation, and the world.

Rising to the Top

After a long ascent, last year Domino’s in Ann Arbor Township became the largest pizza company in the world. Now all eyes are on the CEO transition from Patrick Doyle to Richard Allison.

Change Agent

As the automotive and technology sectors stand at the precipice of a brave new world of autonomous and connected vehicles, Mary Barra, chairman and CEO of General Motors Co., won’t allow the automaker to take a back seat to anyone.

Post-Op

After the historic merger of Beaumont, Oakwood, and Botsford hospitals, John Fox, CEO of the new Beaumont Health, is eyeing growth across the region, developing technology to improve patient outcomes, and embracing transparency — even if it requires admitting mistakes.

Arsenal of Innovation

Propelled by the U.S. Army’s large R&D operation in Warren, the defense, automotive, manufacturing, IT, and cybersecurity sectors are converging to develop autonomous ground and aerial vehicles, new technologies, and rapid prototyping.
Edit ModuleShow Tags

Most Popular

  1. Revered Cadieux Café on Detroit’s East Side Sold to Restauranteur Paul Howard and Musician John Rutherford
    The owners of the Cadieux Café on Detroit’s east side today announced that they have sold the...
  2. Farmington Hills’ Plum Market to Open Street Concept Store in Downtown Detroit
    Plum Market, a food and beverage company based in Farmington Hills, will open a street concept...
  3. Bloomfield Hills-Based Sterilogy and Grand Valley Students Develop System to Help Reduce Hospital Infections
    Keeping hands clean and sanitized in hospitals and other medical facilities can be a challenging...
  4. BESA Detroit Restaurant Opens in the Central Business District
    A new restaurant, lounge, and private dining establishment called BESA Detroit has opened on the...
  5. HTI Cybernetics in Sterling Heights to Invest $20.6M in Expansion
    Sterling Heights-based HTI Cybernetics Inc., a provider of automated and robotic welding systems,...
  6. Beaumont Health and Universal Health Services to Build $40M Mental Health Hospital in Dearborn
    Beaumont Health in Southfield and Universal Health Services (UHS) today announced they have...