New $330 Million Class Action Suit Targets LandAmerica 1031 Exchange Services and Sun Trust Bank

Chicago Sun-Times news service published this deansguide article 1-21-09

In what must be the most frustrating of 1031 exchange collapses, clients of title insurance mainstay LandAmerica have filed a $330 million class action suit against  the failed LandAmerica Exchange Services, part of LandAmerica title, and Sun Trust Bank. According to the Richmond Times-Dispatch story the charges specifically focus on actions of “defrauding clients by using their money to pay off other clients.” That would sound like an old fashion ponzi scheme and have we not heard this story before in the Ed Okun 1031 Tax Group travasty?

Two Principles Named

According to the Richmond Times-Dispatch’s Emily C. Dooley, two top executives for LandAmerica 1031 Exchange Services were named in the suit a Stephen Connor and G.William Evans. “Evans is also the chief financial officer for LandAmerica Financial Group” according to the story.

The Final Final

According to Dooley’s report “The lawsuit claims that LandAmerica used money from new customers to pay off older customers whose money had become inaccessible because it was invested in auction-rate securities, a type of credit that froze in February.”

Remarked Robert L. “Rusty” Brace  California attorney for one of the victims: “Once that market failed, [LandAmerica Exchange Services] should have shut down.  .  . Our money was used to pay those other exchangers.”

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3 thoughts on “New $330 Million Class Action Suit Targets LandAmerica 1031 Exchange Services and Sun Trust Bank

  1. This could never happen at Haven Exchange. We open a brand new FDIC insured, 100% liquid money market account at Union Bank of California for each and every exchange. Our client receives the monthly bank statement from Union Bank.

    Because our client monitors his/her/their own money the entire time it is held by Haven Exchange, it would be impossible to use one client’s money to purchase another client’s replacement property.

    Further, since Haven Exchange never invests exchange funds via brokerage houses such as Charles Schwab or Lehman Bros., we have no need to rob Peter to pay Paul.

    LES wasn’t doing anything amazing or unusual with the exchange funds, up until the time their investment went sour. Every other QI I have every worked for before Haven Exchange pooled the exchange funds and invested them in triple A rated government backed vehicles such as Fannie Mae, Freddie Mac, etc., which this year fell like a house of cards. How many other title company affiliated QIs are in the same position as LES, just hoping that enough new exchange money comes in until their investments regain the lost value before they are forced to produce the funds for their clients replacement properties?

    You must make sure to obtain the security and transparency for your exchange funds provided by Haven Exchange.

  2. Dorothy,

    I appreciate the information and I like your confidence but. . . I hope for you sake you are 100% right because this comment could be used against you in a court action if Haven failed in any of your claims. I don’t want to see anyone hurt–please be sure on this one.

    As for your past experiences, do you think it’s a great idea in pointing out the following:

    “Every other QI I have every worked for before Haven Exchange pooled the exchange funds and invested them in triple A rated government backed vehicles such as Fannie Mae, Freddie Mac, etc., which this year fell like a house of cards. How many other title company affiliated QIs are in the same position as LES, just hoping that enough new exchange money comes in until their investments regain the lost value before they are forced to produce the funds for their clients replacement properties?”

    The above admission paints you as a “former” opportunist working in a rogue industry whose only function was as weigh station, NOT investor, in these 1031 transactions.

    Do you not see how hard it might be for our readers to trust you even now? You have been, in your past, a part of the problem regardless of whether your former employers lost investor monies via ponzi scheme or not. Your former employers bet other people’s monies aka investors on investments with the hope that those investments did not go belly up.

    Haven is most likely a very reputable firm with no problems for the foreseeable future in the 1031 industry. I don’t think I would have made this statement as it is not in the best interests of your reputation.

    I like your honesty and willingness to “own up” Dorothy–I hope people give you a chance.

    dean

  3. I agree with you, Dean, that I was trained and accepted an improper way of holding exchange funds in the past. It was standard in the industry. I wasn’t in control of how exchange funds were invested, being a mere employee of these former QIs. It never occured to me to be wrong, until one day, years ago, I was trying to understand a judge’s ruling against National 1031. The judge declared that National 1031, who was declaring bankruptcy due to day-trading with their own money, had somehow commingled funds between their general account and their pooled exchange funds account. No one I knew understood how the judge had seen it that way. I asked attorneys and CPAs but all simply shrugged.

    I suddenly had an epiphany. If the QI retains a portion of the interest earned by the 1031 Exchange funds, then every month they write a check from the Trust Account to their General Account that isn’t withdrawn from any of the sub exchange accounts and really has no clear paper trail as to being a fee from any particular sub account. At that moment, each month, they commingle the funds.

    I surprised two attorneys and two CPAs with this sudden realization and all four agreed that had to be it.

    The moment I knew that to be so, it became unconscionable for me to hold exchange funds in that manner. In the face of dissention from our entire board I took action to change our business model. It meant a loss in profit for us but it also meant that we could sleep well at night and rise up in the morning with a smile, knowing ourselves to be the best. To me that’s worth a lot.

    Now the funds are held as safely as is possible, and that is proven to our client each month with the statement from the depository bank. I don’t ask anyone to trust us. I put the money right where they can see it themselves.

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