What began with a $35 million loan for the Ramsey Town Center project turned into a conspiracy among bank executives to defraud other banks that invested millions in the project, according to federal court documents unsealed recently.
While Ramsey city leaders hoped the $1.3 billion Town Center would transform the mostly rural Anoka County community, almost half of the project's 320 acres sit empty and in foreclosure.
The plan for a transit-oriented downtown with homes in walking distance of small shops and parks was derailed after the developer went bankrupt and died last year.
Community National Bank owner William Sandison is accused of taking loan fees without reporting them or paying taxes, according to a federal search warrant affidavit filed by the IRS and unsealed Tuesday. Moreover, he is also accused of failing to disclose that payments weren't being made on the project's $35 million loan.
Another bank executive, Curtis Martinson, made those accusations against Sandison and said Sandison lied to the other banks about the defaulting loan as the project fell apart, according to the documents.
"Bill Sandison has enjoyed a 34-year career in banking that the government now attempts to ruin without giving him a trial or even a single day in court," William Sandison's attorney, Mark Larsen, said Friday.
Sandison and Martinson have been under investigation by the U.S. attorney's office, and documents related to the investigation say Martinson is cooperating with the government.
In separate court documents filed by the U.S. Postal Service and unsealed Dec. 13, Ross Sandison, president of Community National Bank and William Sandison's son, has been accused of receiving kickbacks from a man who did the original appraisal of the project before committing suicide earlier this year.
"Both Bill and Ross Sandison are confident that they will be exonerated by a jury of their peers and they look forward to a trial during which they will prove their innocence," Larsen said.
A string of loans
In September 2003, Community National Bank solicited 19 other banks to participate in the $35 million loan to Bruce Nedegaard, the Town Center developer.
But Community National officials failed to tell the other banks about additional loans they made to Nedegaard because he didn't have the money to complete the project or repay the debt, the court records say.
During October 2003, both Sandisons and Community National gave additional loans totaling more than $3.7 million to Nedegaard's company. Nedegaard used those loans to cover interest payments on the $35 million loan, according to the records.
William Sandison and Martinson decided that the sale of the lots at Ramsey Town Center would go to pay off the secondary loans they and other bank officials made to Nedegaard, instead of the original loan they made to his company, the documents say.
In addition to those loans, the Sandisons, Martinson and other bank officials formed another business, Pentagon Credit, to provide a $6 million loan to cover costs for the faltering Town Center project in the spring and summer of 2004.
It wasn't until a meeting in October 2005 that the participating banks learned that the Ramsey Town Center project had a serious credit problem, that the project was in default, and that the officials involved in Pentagon Credit paid back the secondary loans before the $35 million loan.
Nedegaard died in November 2006, days after he declared bankruptcy.
After that loan went into default, one of the 19 banks, Minnwest Corp., was left holding the mortgage on 150 foreclosed acres.
In addition to participating in defrauding the other banks, Ross Sandison pocketed thousands of dollars through a kickback scheme with the appraiser hired for the project, according to the search warrant filed by the postal service.
J. Scott Renne was hired in April 2003 to do an appraisal on the Ramsey Town Center. He told federal officials that Ross Sandison had him charge $600 on top of his fee for any appraisal he did for Community National. Sandison collected the $600 overcharges from Renne after customers paid, the documents said.
"Ross Sandison denies any wrongdoing," his attorney, Paul Engh, said Friday. "The Ramsey Town Center transactions were all arms length, reviewed and approved by each bank."
Renne said he began making payments to Sandison "in the late 1990s or 2002-2003," according to the documents. He also said there may have been times that the fee was more than $600.
He would either pay Sandison after each appraisal or in payments of several thousand dollars twice a year, the records say.
Renne committed suicide in May 2007, days before his scheduled grand jury appearance. He left a nine-page suicide note that contained references to a "criminal case," "going through a trial," and "expect to lose money if RTC thing gets sucked into it."
The last page of the note references both "trial" and "prison" and "because I wanted to help Ross."
Minnwest Corp., a bank that had an $8 million stake in the $35 million loan, filed a lawsuit against Community National and its officials last month that alleged many of the dealings identified in the IRS documents.
"The fact that they weren't following the loan agreement is really nothing new to us," said Minnwest's chief credit officer, Russ Bushman. He said that Minnwest will continue pursuing its civil lawsuit.
Minnwest officials are now working to find a developer to purchase the 150 foreclosed acres and complete the project, but questions remain about the city's original plan, which included 2,800 homes and small-scale commercial and retail development.
City officials have been pursuing a court judgment that would require a new developer to agree to their original plan. Bushman said Minnwest recently asked the city to stop pursuing the judgment and work with potential developers.
The next auction of the foreclosed land is Jan. 18.
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