The investigation centers on well-known Twin Cities developer Ned Abdul.
Federal authorities are investigating Twin Cities developer and nightclub owner Ned Abdul for allegedly running multiple fraud schemes over a number of years, including skimming cash from his downtown nightclubs and submitting fake invoices to the U.S. government and other tenants of his office buildings.
Search warrants unsealed Tuesday reveal that authorities have been investigating Abdul and business partner John R. Barlow for nearly two years.
Neither man has been charged, and Abdul's lawyer, Bill Mauzy, said he wouldn't comment until he has seen the unsealed affidavit and reviewed it. Barlow couldn't be reached.
The source of the original allegations isn't named in the 37-page search warrant affidavit unsealed Tuesday, but is described as the operator of a business that worked on several of Abdul's projects in the last several years, including Abdul's penthouse atop the Whitney Landmark Residences -- the old Whitney Hotel that one of Abdul's companies converted to condos. The affidavit refers to the source's information as being good and leading to the arrest of another person who was charged by the federal government and pleaded guilty.
The source first met with authorities in the U.S. attorney's office in Minneapolis about two years ago and accused the men of ongoing and past criminal activity dating back years. The resulting probe has focused on alleged tax evasion, fraud and money laundering.
The documents flesh out what drove federal agents to raid the homes and offices of Abdul and Barlow on May 18. According to the search warrants, investigators were looking for records related to the two men's many businesses, including Epic and Karma nightclubs and Uptown Drink. Abdul, 41, of Deephaven, also goes by Nedal Abul-Hajj and his company, Swervo Development Corp., is based in the Butler North building in the Warehouse District. Barlow, 49, lives in Minneapolis, and his companies include Blueprint Builders and Haus Buyers, which bills itself as Minnesota's short-sale specialist.
A search warrant was also executed for a Wells Fargo safe deposit box.
The affidavit filed by Mary Agnew, an inspector for the U.S. Postal Inspection Service, describes a web of deception. The two men skimmed cash from the various nightclubs for Abdul's personal use and to pay subcontractors on their building projects in cash, according to the affidavit. Agnew said she reviewed the tax returns for Epic Entertainment for 2007 and 2008 and that the club lost about $70,000 and $278,000 in those years.
It also said that one of Abdul's companies has been renovating office space for the U.S. Army Corps of Engineers in St. Paul and falsely charged the Corps for $197,007.25 for work actually done at a different project in Brooklyn Park.
Agnew accuses Abdul of defrauding tenants in his buildings by coercing subcontractors to submit false invoices to him classifying their work as "common area maintenance and repairs." In Abdul's leases, such work is paid for by tenants who establish a fund for such work, rather than by Abdul.
The source said his company submitted such false invoices for work done at the two Wyman buildings in Minneapolis, at 400 1st Av. N. and 110 5th St. Abdul uses the scheme on many buildings he owns, according to the affidavit, such as the Colwell Building at 123 N. 3rd St. in Minneapolis.
In 2006, according to the source, Abdul instructed the source's company to jimmy up a false report about water damage in one of the Wyman buildings after pipes burst to get insurance funds.
The source also told authorities that Abdul paid him as much as $150,000 in cash for work he did at the Herschel Lofts at 748 N. 3rd St. in 2007. He said he would go to Abdul's offices and "would be handed a bag containing rolls of currency, which appeared to the source to be ... not like cash a bank would issue with currency bands."
In another alleged scheme, Abdul supposedly told subcontractors on the Whitney condo conversion project in Minneapolis that it was headed for foreclosure and they'd be left unpaid, but that if they agreed to do some free work on his top-floor penthouse, he would fight against foreclosure. The source estimated workers did more than $1 million of work on the penthouse.
Abdul appears to be swimming in cash, according to the affidavit. One of the source's employees who worked on Abdul's million-dollar house on Linwood Road in Deephaven told him it housed a large walk-in safe with a door a foot thick that weighs more than 3,000 pounds. Yet Abdul stiffed him and other contractors who worked on his home, the source's employee said, including a company called J&J Glass that was owed some $27,000 for a curved piece of glass for the master bathroom.
The raids have surprised real estate professionals who have watched Abdul's near-meteoric rise over the years from flipping houses in north Minneapolis to amassing a fortune in commercial real estate. His major holdings include the Textile Building and Lumber Exchange Building in Minneapolis and the Northland Corporate Center in Brooklyn Park.
One leasing agent said Abdul has shown a Midas touch with tenants. He's also drawn the ire of local unions. During the conversion of the former Whitney Hotel into condos a few years back, they accused him of squeezing nonunion workers, such as paying day laborers cash and working them long hours.
Jennifer Bjorhus • 612-673-4683