Firm says claim completely “without merit”
Cayman Islands real estate firm RE/MAX is accused in a US lawsuit of participating in a “fraudulent scheme” to scam more than 30 people out of several million dollars by selling them luxury condominiums in an East End resort project that was never built.
The firm is accused of misleading investors in an “aggressive campaign of deception” to convince them to buy property in the failed development known as the Island Resort Project.
The court filing alleges that RE/MAX agents told buyers that financing was in place and that construction was under way, knowing that this was not the case.
Even in the weeks before the developer, Caribbean Island Developments, went “belly up,” agents are alleged to have continued to dissuade purchasers from withdrawing their cash, “lulling them into thinking the project was on track, on time and problem free.”
In a statement to the Cayman Compass through its attorneys on Friday, the firm said the complaint was completely “without merit” and would be vigorously defended. In the complaint document – an outline of the allegations – it is claimed that RE/MAX took commissions and broker fees of up to 50 percent on the sales – a state of affairs which partly prevented the investors from being repaid when the project collapsed.
In total, purchasers handed over $5.6 million to Caribbean Island Developments in deposits and pre-payments on condos in the development, of which $1.83 million was passed on to RE/MAX Cayman in commissions and sales bonuses, the document states.
The lawsuit is being brought by the official liquidators of Caribbean Island Developments, which the court filing says went bust in 2011 after the bank foreclosed on a loan and sold the land intended for the development at auction.
Simba Ltd., which trades as RE/MAX in the Cayman Islands, and its principals Kim Lund and James Bovell, are named as defendants in the suit along with developer Michael Beggs, one of the principals of CID, and Oliver De Hart, who was both a RE/MAX agent and president and director of CID, according to the court filing.
Other defendants in the complaint, filed at a federal court in Chicago, are RE/MAX Holdings, Inc., RE/MAX, LLC, and RMCO, LLC, described as the American franchisors of the Cayman company.
In a statement issued to the Compass on Friday, the real estate firm said Chicago attorney Robert J. Palmersheim of law firm Schopf & Weiss had been retained to defend them in the U.S. courts and “vindicate their good names and reputation.”
“Mr. Kim Lund, Mr. James Bovell, and RE/MAX Cayman Islands are aware of the lawsuit filed against them in the United States by the Joint Official Liquidators of Caribbean Island Developments Limited. Neither Mr. Lund, Mr. Bovell, nor RE/MAX Cayman Islands have been served with a lawsuit and thus reserve comment on any allegations brought against them.
“Notwithstanding, the claims have no merit whatsoever and Messrs. Lund and Bovell intend to vigorously defend any such claims at the appropriate time.”
A summary of the complaint, filed with the district court in Illinois, states: “The defendants bilked more than 30 people out of nearly $5.6 million by selling them luxury condominiums in CID’s “Island Resort Project,” a proposed development on the island of Grand Cayman that was never built.”
Initially RE/MAX Cayman agreed not to receive commissions on condo sales on the project until construction was under way. This arrangement was unsuccessful and no units were sold, preventing the developer from obtaining financing to begin construction, it states.
The realtor used its position as the “dominant resort condo seller” in the Cayman Islands to re-negotiate its deal so it would be paid commissions and bonuses as it made sales, it adds.
“Following this change, the Cayman defendants engaged in an aggressive campaign of deception to get people to buy and hold condos in the Island Resort Project.”
It says the “campaign” involved a number of false representations to prospective purchasers including:
- That the Island Resort Project had obtained financing when in fact it had not and never did
- That construction has begun, though it never did
- That some of the agents had bought condos themselves, though they were given them for free by the developers
- That condo sales exceeded 40 percent of available units, though sales never topped 33 percent.
The “fraudulent scheme” ran from 2007 to 2011, the lawsuit says.
“By July 2011, CID still had not obtained financing, and without ever starting construction, it went belly up.
“Because the Cayman defendants had already taken their victims’ money, including sending a portion up to RE/MAX, no money was returned to the victims of the fraud.”
Lawyers for the official liquidator suggest the RE/MAX branding was essential to giving the buyers the confidence to invest.
They say the purchasers were completely “in the dark” about the developer’s difficulties and the project’s collapse came as a surprise.
“It was not until the liquidators were appointed and began interviewing purchasers regarding their dealings with the defendants that the individuals first realized they were victims of a massive fraud and would not be receiving either the condo units they paid for or any of the money they paid relating to the project.”