The FTC filed suit against the development in Belize after former debt relief company owner, Andris Pukke and others allegedly were engaged in deceptive marketing and false promises to separate Americans from their money.
The court-appointed Receiver has just released his first report on what he found after taking over the companies.
What is unfortunate for people who believed the sales messages and were convinced to send their money to this and other developments, is they are still in denial about the mess behind what they thought was a shining development.
Here are what the Receiver actually discovered, in his own words.
On November 7, 2018 the Temporary Receiver took control of the Receivership Entities’ business premises at 3333 Michelson Drive, Suite 500, Irvine, CA. The Temporary Receiver interviewed a number of employees and also interviewed Defendants Andris Pukke (Pukke) and Brandi Greenfield (Greenfield). Defendants Peter Baker (Baker), Rod Kazazi (Kazazi),
Frank Costanzo (Costanzo), Luke Chadwick (Chadwick) and John Usher (Usher) were not at the business premises. The Temporary Receiver was later able to interview Baker, Kazazi and Costanzo. Chadwick’s attorney refused to let his client be interviewed by the Temporary Receiver. Usher lives in Belize and the Temporary Receiver has not yet been able to interview him. Pukke was generally circumspect and non-specific in his discussions with the Temporary Receiver. Greenfield was generally evasive and was not candid in her discussions with the Temporary Receiver. Baker, Castanzo, and Kazazi have provided information that has been helpful to the Temporary Receiver. Michael Santos (Santos) was later added as a defendant. The Temporary Receiver has not yet interviewed Santos but has located email that discusses his role.
Pukke told the Temporary Receiver that “I’m just the marketing guy.” While the Temporary Receiver has not fully completed its investigation of actions and activities of the Receivership Entities and the intermingled and numerous financial records of the Receivership Entities, the Temporary Receiver has determined Pukke’s statement was demonstrably false in that he has hidden his ownership in the Reserve at Sanctuary Bay in Belize (the Reserve) and exercises total control over the Reserve and its cash receipts.
From the forensic accounting and other analysis of the accounting and business records of the Receivership Entities completed to date, the Temporary Receiver has confirmed these financial records often contain misleading and inaccurate posting entries and descriptions that hide or mislead cash diversions by Pukke. As detailed in the Financial Information section of this report, Pukke ignored any rules regarding corporate governance. Examples of Pukke’s control are set forth in email attached at Exhibit 2. The following summarize the email included in Exhibit 2:
2-a Kazazi wrote to Pukke with a spreadsheet attached. The email states in part “I added a column for you to put in a rating of 1, 2,or 3 based on the following: 1 Strongly try to save the deal 2 Neutral 3 Take the lot back and run”
2-b Pukke wrote to Abe Abeliouny and copied Kazazi. The email states in part “Rod, did anybody try to renegotiate his deal and turn it into a financed deal?”
2-c Pukke wrote to Jesse Jaime about a management report. “Thanks. Please include October’s scheduled down payments on the report. As I mentioned, I always want to see the current month as well as the following month.”
2-d Pukke wrote to Chadwick about negotiating a down payment for a lot. The email states in part “Shoot for the 10 and see what happens.”
2-e Pukke wrote to Clara Navarrete about negotiating a down payment for a lot. The email states in part “Also, if his funds aren’t due until Dec, we definitely need at least $10k as a down payment.”
2-f Pukke wrote to Chadwick about a dispute involving a construction loan. The email states in part “I think she’s aware of this but frankly, I don’t care. If she starts creating a problem, have someone drag her the [….] out of there. I’ve had it with this [….]!!”
2-g Pukke wrote to numerous people about policy. The email states in part “I want to make sure everyone is on the same page regarding the contract policy, down payments, etc. as there seems to be some confusion.”
2-h Pukke wrote to numerous people regarding a lot purchase. The email states in part “That’s only if there is absolutely no way they’ll agree to the lot purchase / future condo swap.”
2-i Pukke wrote to Usher and Kazazi regarding an employee. The email states in part “Please instruct Yvette to work on the BZ fixed expense report as Rod requested. It’s not her decision which “assignments to work on” and which to put off until later.”
2-j Pukke wrote to Kazazi about a wire transfer. The email states in part “Can you send a wire to JV [John Vipulis] for $100? I’m not sure if you have any other big payments to make but I need to get him a payment if possible.
2-k Pukke wrote to Baker regarding a request to spend $3,200 for 550 feet of wire to complete installation of a generator at Baker’s home at the Reserve. The email states “Of course have them get it.”
The Temporary Receiver reviewed many other emails where Pukke was directing operational and financial matters.
Pukke leverages his ownership interest to exercise complete control over the Reserve’s sales, management, and all cash receipts. Pukke has improperly used this control to divert at least $15.9 million of consumer payments away from developing the Reserve and the common area property. From January 1, 2009 through November 6, 2018, the Receivership Entities received at least $124 million2 in the form of lot payments from consumers. Therefore, about 12.8% of the total lot payments were diverted by Pukke.
The forensic accounting and financial analysis the Temporary Receiver has completed to date document and describe the $15.9 million of payments and investments for Pukke, his family, including Relief Defendant Angela Chittenden (Chittenden), and to friends and controlled entities. The following is a summary of the distribution of the diverted $15.9 million:
The consumer payments of $15.9 million were diverted from infrastructure buildout and multiple capital improvements promised to consumers. The promises the Receivership Entities made to consumers purchasing a homesite lot included statements that the Reserve project was a “no debt” development, with virtually every dollar collected from lot sales going back into development. These detailed promises and commitments included access to an international airport, a completed and functioning hospital, a hotel, retail shops, and a 250- slip world-class marina.
The Reserve was not free of debt. The Federal Trade Commission (FTC) noted two loans on page 19 in its memorandum in support of the motion for ex parte temporary restraining order. The Temporary Receiver has further researched these loans. Mr. Barienbrock formerly owned lots at the Reserve and currently moors a yacht at the Reserve’s marina. Mr. Barienbrock5 provided the Temporary Receiver with a note dated November 10, 2017 in the amount of $4,635,500. The note carries an interest rate of 10% and was executed by Kazazi. This loan has not been repaid. Ms. Mathis and her deceased husband are the owners of CVM Corporation. Ms. Mathis provided the Temporary Receiver a copy of a November 21, 2013 note in the amount of $2,500,000 between Eco-Futures Belize Ltd. and CVM Corporation. The note carries an interest rate of 10% and was executed by Chadwick and Usher. According to Ms. Mathis, the outstanding balance on the note is approximately $2 million.
Additionally, Baker told the Temporary Receiver that in order to help complete the marina he arranged for Patrick Callahan6 to loan over $1 million to the Reserve. Baker provided the Temporary Receiver text messages and email exchanges that show Mr. Callahan loaned between $1,240,000 and $3,500,000 to the Reserve. Attached at Exhibit 7 is an email from Mr. Callahan’s attorney in response to the Temporary Receiver’s inquiry to Mr. Callahan. The email states in part “The loans were made years ago and were supposed to fund a marina being constructed at the Sanctuary Belize development.” Baker believes these transactions were documented with a loan agreement, but he does not have a copy of the agreement.
Based on the above, it is clear that Pukke, Baker, Kazazi, Chadwick, and Usher knew the Reserve was not debt free.
The Temporary Receiver believes the current financial model of the Reserve is not viable or sustainable to fully develop the Reserve as promised to consumers.
Experts engaged by the FTC estimated it would cost $613 million to complete the Reserve as promised to consumers and $248 million to complete a scaled down version. Over ten years, lot sales have generated about one-half of the amount needed to complete the scaled down version. As noted above, gross sales revenue must be used to cover basic overhead before excess funds are available for development.
None of the individuals interviewed by the Temporary Receiver have been able to provide a precise inventory of additional lots that could be marketed and sold. There have been estimates of around 500 to 700 potentially available lots, but the Temporary Receiver has not been provided any documentation. The estimated potentially available lots are about one half of the lots that have been sold over the life of the project.
The Receivership Entities “financed” most lot sales by accepting down payments and amortizing the remaining balance due over a period of years before a consumer could take title to the lot. The table on page 23 of this report shows that gross receipts from the existing loan portfolio over the next five years will be about $30 million7. Assuming no overhead expenses and no loan defaults these projected gross receipts cover only about 12% of the $248 million needed to complete a scaled down version of the Reserve.
The Temporary Receiver did not locate any plan to complete construction of the Reserve at the Receivership Entities’ corporate offices.
On several occasions Baker told the Temporary Receiver he would provide the Temporary Receiver with a budget to complete construction of the Reserve. To date, no budget has been provided.
In addition, as discussed in the Reserve Section of this report, the amenities at the Reserve operate at a loss.
As detailed in the Financial Information section of this report, about $17.4 million was spent on developing the Reserve. Therefore, development costs were about 14% of the $124 million raised from lot sales. The amount spent for developing the Reserve was just $1.5 million more than the amount the Temporary Receiver has preliminarily determined Pukke diverted from lot sales.
The Temporary Receiver reviewed numerous documents located at the corporate offices of the Receivership Entities. These documents included general marketing information, sales forms, telemarketers’ notes, prepared scripts, buyback agreements, foreclosure notices, and litigation files.
The Receivership Entities advertised their real estate products through the radio, internet, TV infomercials and TV news channels. All advertisements were designed to drive the consumer to the Receivership Entities’ website, BuyBelize.com. When a consumer contacted the company, a telemarketer would contact the consumer and pre-qualify the consumer by determining how much money the consumer had available for investment. The telemarketer would complete a form with background information on the consumer. Once qualified, a telemarketer would contact the consumer and take them through a “video tour” of the Reserve. The primary goal, which is repeated on many of the forms used by the sales department, is to book the consumer on a 4-day tour of the property. During these initial contacts by telemarketers, the Receivership Entities are making numerous misrepresentations, including but not limited to the following:
Specific examples of these misrepresentations are discussed below. Telemarketers at the Receivership Entities’ corporate offices marketed lots at the Reserve and formerly sold lots at a neighboring project called Kanantik. Many of the sales scripts and forms for these two projects are virtually identical and are interchangeable.
Debt Free Business Model – Telemarketers pitched the fact that the project is a debt free project which makes it a much safer investment because the developer would not face bankruptcy or foreclosure. In a document titled, “The Only Information You need to know At This Point – Sanctuary Belize, Residential -Resort-Marina, Eco Futures Development,” (Exhibit 12) the script compares Sanctuary Belize to other projects and states, “Most of the other developments are not debt free. Meaning there is a lot of risk associated with investing your money in them.”
Appreciation of Lot Values – Sales scripts are replete with references to the potential appreciation of the value of each lot. Telemarketers would state that lot values will double or triple in 3-5 years, or “your original investment has now increased almost 300% in 3 years.” In multiple areas of the scripts and forms used by the telemarketers, appreciation levels up to 400% over a short period of time were set forth.
A sales script collected from the desk identified as Lauren Lane was titled, “Lauren’s Version 1.0.” (Exhibit 13).
This script contains several representations about the expected appreciation of lot values. For example, the script states, “A little bit about myself, I have been a Sr. Property Consultant for a few years now I’ve also bought property in Sanctuary Belize myself11. In my opinion these lots have the potential to double or triple in the near future.” This script is designed to be used while the telemarketer is taking the consumer through a virtual video tour. Under the heading, “Development Location,” the script states: “From an investment stand point this is the most important slide I’m going to show you. What I’m going to do first, is explain the convenience factor. So right now, very few airlines fly to Belize, and NONE to Southern Belize. So it’s not a global market.…yet. This airport and 120,000 square foot hospital is currently under construction, which will be completed in the near future. So this is going to serve a couple of different purposes for you. Sanctuary Belize is one of the closest developments to the new international airport. Are you familiar with what happened in Costa Rica approximately 12 years ago?….(If the answer is yes, say “As you know”) They built an international airport. Take a guess what percentage the land in the area went up in just a few years?……Approximately 250-400%. People that got in before the airport was completed made an absolute fortune. The same thing is going on in Southern Belize.” (emphasis in the original text) This statement is repeated almost verbatim in numerous other scripts used by other telemarketers. The primary difference was that most of the later scripts deleted the reference to a 250% increase and only included the reference to a 400% increase in appreciation. Numerous scripts described the international airport and 130,000 square foot hospital as “currently under construction.”
Telemarketers would attempt to create a sense of urgency by suggesting that the advertising campaign and the resulting interest in buying in Belize are going viral. Telemarketers even suggested that all lots will be sold out within months and that tours of the property will end in August 2014. Another marketing method that raised a sense of urgency or the fear of loss of opportunity was offering discounts for the purchase of multiple lots. The Receivership Entities also offered a “Gold Membership” in the “Founders Club” which required a purchase of at least $750,000. Examples of consumers that paid in excess of $1.0 million in order to qualify as a member of the Founders Club will be discussed in more detail later in this report.
It seems as if the Receiver has found problems in everything related to Sanctuary Belize and the way the company and other interrelated companies were run before the court seized control.
Based on the finding in the report, it seems implausible how people who fell for the sales promises are ever or would have ever received the benefits, amenities, and improvements they believed they would receive. According to the Receiver, the way cash was flowing would have been insufficient for the development as sold.
The Receiver goes on to detail a number of other alarming issues regarding, refunds, buybacks, threats, lots sold multiple times, litigation, etc.
What is clear is it seems nearly impossible for me to reconcile the rosy picture many lot purchasers believe and the support the parties involve spout with the factual reality discovered by the Receiver. His quest continues.
I guess we will just have to wait for the final outcome of the legal action by the FTC to ever get a clear picture of the mess in Belize.