Federal investigators have identified the majority development partner in the troubled Sexton condominium project as the central figure in a mortgage fraud scheme involving about one-quarter of the units sold in the downtown Minneapolis building.
In an affidavit filed this week in U.S. District Court in St. Paul, IRS agents say Brett Thielen orchestrated a mortgage flipping scheme involving 13 units at the redeveloped commercial building at 521 S. 7th St. Thielen's company, JJT Development, owns 50 percent of Sexton Lofts LLC, which developed the project.
The Sexton has 123 units, but fewer than 50 were ever sold, according to Hennepin County property records.
The affidavit says Thielen laundered proceeds from the scheme by having his lawyer, Ben Houge, wire money to a lawyer in Australia, who then wired the money back to Thielen and others taking part in the mortgage fraud. The Australian lawyer also wired money on Thielen's behalf to buy $700,000 worth of stock in two companies, DigitalTown Inc. of Burnsville and Espre Solutions of Plano, Texas.
The IRS filed the affidavit to seek a warrant to seize the stock and other assets that it says were proceeds of the scheme.
The court documents don't specify a total amount of fraudulent proceeds, but say Houge sent more than $2 million to the Australian lawyer.
Houge said Friday he had not seen the affidavit and declined to comment.
Assistant U.S. Attorney David MacLaughlin declined to comment Friday on whether Thielen, Houge or anyone else will be charged in connection with the scheme outlined in the court documents.
According to the affidavit, the fraudulent transactions began with Thielen providing cash to buyers, who would then hold purchase agreements for specific units. The titles would be transferred to Thielen, who then re-sold the units at inflated prices to new buyers on the same day or soon after the original sales. The higher resale prices were based on false appraisals and income information for the new buyers. Thielen would then get the fraudulent proceeds from the re-sales, splitting the money with others taking part in the scheme, the affidavit said.
One person already has been convicted of mail fraud and conspiracy for his role in the scheme outlined in the affidavit. As part of a guilty plea, Joseph Huebl, 28, agreed to cooperate with an investigation by the U.S. attorney's office.
The allegations of mortgage fraud are the latest of several financial and legal troubles to surface at the Sexton, which went into foreclosure last fall.
Condo owners have sued the developers for failing to complete the project, including building a parking ramp whose cost was included in the price of some units. An unpaid contractor has placed a $5 million lien against all the units in the building.
Susan Feyder • 612-673-1723
