By Amy Silverman
By Olivia LaVecchia
By Monica Alonzo and Stephen Lemons
By Chris Parker
By Michael Lacey
By Weston Phippen
In a settlement agreement that documents apparent improprieties but does not accuse Magellan of wrongdoing, the Alberta Commission noted that Magellan managers improperly "transferred" about $6 million from Galleria Palms, a Magellan limited partnership that holds a Tempe apartment building, to other Magellan entities. The money was apparently later "transferred" back into the project.
Was this illegal commingling?
The Alberta Securities Commission says no.
Magellan "never intended to deceive or otherwise mislead the investors and never intended to jeopardize the project," the Alberta Securities Commission concluded.
The settlement agreement was too-little, too-late for investors who want their money back.
"Commissions don't get money back for investors," says Linder. "What we do is we say, 'You are a danger to the marketplace, therefore you are not allowed in the marketplace for a number of years.' . . . I know that is not very satisfactory for the investor who says, 'But they took my money.'
"The way our system works, and the way the American system works, is if you want your money, you go to court."
When asked to comment on the Alberta action, Resnick writes: "All matters have been resolved."
Alberta retiree Tom Esler believes much remains to be resolved.
He says he invested $23,000 in the Galleria Palms Limited Partnership. Three years later, Esler says he's gotten back only about $4,470.
Esler is livid. He contends Alberta authorities slapped Magellan on the wrist and washed their hands of the whole situation.
Alberta Commission spokesman Linder defends the agency's actions.
"You have the investors claiming black, you have Magellan claiming white," he says.
"All I can say is, what we looked at, we did not find what we would term as fraud . . . But Magellan is a huge entity, and we didn't look at every particular transaction. . . . In the matters we looked at in our investigation, the sanctions were more than adequate to deal with the situation we discovered."
"We barred these individuals from our marketplace for two years, and, presumably, investors in the future will take some heed of that."
But Magellan does not seem eager to get back into the business of raising money from small Canadian investors.
Investors like Ron Kuhn, for instance.
Kuhn, a British Columbia computer consultant, claims that three years ago he invested $30,000 in Magellan Traditions, a limited partnership set up to build and sell an apartment building in Mesa. Kuhn expected to reap a sizeable profit in two years. But three years later, Kuhn says he hasn't had a single cent of his original investment returned to him, and he's concerned that the partnership still doesn't hold title to the land. And like the Schroeders, Kuhn says he's received "very ambiguous" and "Clintonesque" updates from Magellan about the financial condition of the Mesa project. So Kuhn demanded explanations from Magellan, Magellan's accountant and regulators.
He says he got no satisfactory answers, so he concluded that it is not smart for Canadians to invest in an Arizona limited partnership.
"My opinion is that Magellan has exploited a jurisdictional nightmare," says Kuhn. "It is difficult for anyone in Canada to do anything in the United States or to access information about the projects. . . . I think Magellan is counting on this."
Disappointed with Canadian and American regulators, some Magellan investors took matters into their own hands.
In the mid-1990s, Canadians spent about $21 million to buy into Magellan's Real Estate Investment Trust, or REIT. The REIT contains 11 limited partnerships, each of which owns a separate real estate project. Five of the REIT properties are located in the Valley.
Although the properties are in the United States, the REIT is based in Vancouver. The actual trust document is recorded in Maryland.
In 1997, some REIT investors became angry when Magellan managers failed to provide audited financial statements that investors were entitled to. In addition, a lender wrote in an internal memo saying that Magellan managers had improperly "loaned" approximately $1.8 million from the REIT to other Magellan projects.
In 1998, some REIT investors organized a successful revolt.
They elected new trustees and weakened the power of Magellan trustees. Then they elected a new chairman, Ian Mallmann, a former vice president for Vantage Securities, which sold Magellan investments in the mid-1990s. The rebel trustees' first order of business was to commission a "forensic" audit by Pricewaterhouse Coopers.
That audit is the cornerstone of a fraud and racketeering lawsuit filed in August in Phoenix district court by the new REIT trustees. The suit names all Magellan companies and Losch, Litwin and Dewar personally.
In a nutshell, the REIT alleges that Magellan companies and Magellan principals raided the REIT's coffers for all sorts of improper expenses -- to fund other projects, to enrich themselves personally, to pay unrelated legal fees. Among other things, the REIT says Magellan honchos improperly lent $2 million of the REIT's funds in 1996 to one of their companies, then tried to hide it from the new trustees. According to the lawsuit, the loan still hasn't been paid back.
In her October 22 letter, Resnick says the lawsuit was filed in the wrong country and contends the allegations in the lawsuit are without merit.
Resnick says Magellan does not owe the REIT a penny; the REIT owes Magellan "in excess of $4 million." She adds that Magellan's efforts to sell REIT properties for the benefit of investors have been thwarted by Mallmann.