It's been about five months since federal agents raided the Minneapolis offices of developer Ned Abdul and business partner John Barlow for possible fraud involving billing tenants and allegedly skimming cash from their nightclub and event center.
Now the Twin Cities real estate developer, a major Warehouse District landlord, faces fresh accusations of fraud. A former NHL player who invested in two of Abdul's real estate deals has sued Abdul and Patrick Smith, a Coldwell Banker Burnet real estate agent, accusing them of bilking him of at least $1.5 million when they flipped two commercial properties at inflated prices to him and other unsuspecting buyers.
Making matters worse: Abdul's company, Swervo Development Corp., bought and resold each property on the same day, marking up one of them by more than $13 million, according to the complaint.
In his lawsuit, filed Wednesday in Hennepin County District Court, investor Brian Lawton also names Swervo and Edina-based Coldwell Banker Burnet as defendants. Lawton, 45, lives in Edina. He played hockey for the Minnesota North Stars for a time and was general manager of the Tampa Bay Lightning until this spring.
The new complaint is separate from the ongoing criminal investigation into Abdul and Barlow, but it opens a window onto Abdul's extensive real estate dealings that potentially could broaden the scope of the federal probe. No charges have been filed in the federal case, but a search warrant revealed investigators suspect Barlow, Abdul and others of mail and wire fraud, money laundering and tax evasion. Both Barlow and Abdul dispute those allegations.
Abdul, 41, lives in Deephaven and has a reputation as a shrewd dealmaker, a maverick with an eye for fixing old buildings, particularly in the Warehouse District in downtown Minneapolis where his clubs Epic and Karma are. He has devoted fans but has also been controversial at times. His project converting the Whitney hotel on the Mississippi to condos drew union protests for supposedly taking advantage of nonunion workers.
The alleged flipping scheme centers on two commercial properties. According to the complaint, Abdul and Swervo arranged to buy a Hudson, Wis., retail center for $6.5 million, and resold it to investors the same day for $7.85 million. To justify the price on the struggling property, Lawton claims Swervo and Smith struck a bogus 10-year lease with the building's owner, Avanti Investments, for more than half the building's space and rental income, and then used that information in the financials to market the property.
Likewise, Swervo and another company owned by Abdul arranged to buy the Noble International manufacturing complex near Detroit for $62.84 million, then marked it up by 20 percent and resold it to investors that day for $76 million. Swervo kept a 51 percent stake in the property only because it couldn't find enough investors, the lawsuit said. Noble International, an auto parts supplier to the Big 3, filed for bankruptcy last year.
Lawton was part of both investor groups, with Smith working as his agent. But Smith, who invested in the deals himself, withheld crucial details, the lawsuit says, such as the price Abdul and Swervo paid for the properties, the timing of the sales and the nature of the Avanti lease.
The alleged scheme started unraveling when Avanti, which had sold the building to Swervo, stopped paying rent, the lawsuit said. Investors sued Avanti, run by John Erickson of Minneapolis, in 2007. Erickson testified that he signed the large lease in his former building to "help close the deal" with Swervo, according to an affidavit in that case. He said he never intended to occupy the space but planned to sublease it.
In an interview, Abdul would only say the claims aren't focused on him but on Smith and on Coldwell Banker Burnet. "There's very little that's talking about us," Abdul said. "It's more fiduciary claims that they're alleging."
Abdul and his company are named in nine of the 19 counts in the lawsuit.
Smith called Lawton a "disgruntled investor" trying to get his money back after commercial property values tanked.
"I had more money in both of these deals than Brian, by far," he said. "I'm just choosing to take responsibility for my investment decisions."
A Coldwell Banker Burnet spokesman said the company doesn't comment on pending litigation.
Lawton declined to comment, but his lawyer said Lawton will want about $2.5 million altogether, including attorneys' fees and extra money Lawton had to put in to shore up the deals.
"In my opinion, the allegations in the complaint bring into sharp relief business practices which many investors might find troublesome," said Joe Anthony of Anthony Ostlund Baer & Louwagie.
One of the other 15 investors in Noble International said Lawton is the only member of that group pursuing litigation. The investor, David Azbill, a residential real estate agent at Coldwell Banker Burnet, said Lawton told him about the lawsuit. Azbill said he disagreed with it. None of the investors is happy about how the deal turned out, but it soured because of the economy and not because of how the deal was structured, he said.
Azbill said he hadn't known Abdul had marked up the Noble complex by $13 million before selling it to them. But he said he "didn't expect him to bring us a deal where he's not making money." If Abdul were really flipping the property he would have washed his hands of it and not taken a 51 percent stake, he said.
Abdul has been in court related to flipping properties before.
Earlier in his career Abdul bought, fixed and sold homes in north Minneapolis. That landed him in federal court in 1999 when a subprime mortgage company, WMC Mortgage Corp., accused him of running a flipping ring. The case was settled for an undisclosed sum, according to court records.
Jennifer Bjorhus • 612-673-4683