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Thousands Face Uncertain Futures Since Fraud Uncovered

July 29, 1990

PORT ST. LUCIE, Fla. (AP) _ Willie Flynn was a captive audience for his General Development Corp. salesman.

While the salesman trumpeted the glories of owning a home in a GDC development, Flynn sat in his wheelchair - the legacy of a Viet Cong land mine that cost him the use of his legs in 1965 and killed two friends.

″They told me in the hospital that I was the lucky one,″ he recalls. But Flynn, 46, was not so lucky when it came to making Florida investments.

He’s among 11,000 people who bought General Development properties between 1983 and 1989, when the Miami-based developer - now in bankruptcy court and fighting for survival while fending off criminal and civil prosecutions - was operating what a federal indictment describes as a carefully staged fraud.

Authorities call it one of the largest frauds in the history of Florida, quite a distinction in a state known for land scams.

But this was much more sophisticated than the swampland sales of the 1950s and ’60s, they say. According to the indictment and interviews with federal authorities, GDC relied on high-pressure sales, bogus appraisals, and control of all aspects of a transaction.

Prospects were kept from learning the true value of properties, the indictment says. Hotel clerks were even paid to screen customers’ calls to prevent them from hearing from GDC competitors. Lot buyers were urged to move up to developed homes, and there was constant pressure to ″buy now before the price goes up even more.″

After the sale was made, authorities say, the owners were sent glowing statements telling them it was increasing in value.

The company pleaded guilty to fraud conspiracy in a March plea bargain soon after the indictments were released, and it has closed many sales offices and laid off more than 5,500 employees. But the plea bargain was rejected this month by U.S. District Judge Lenore Nesbitt, who thought the plea to one count of fraud conspiracy was insufficient. A new agreement now must be negotiated.

Flynn, who was living in Hillside, Ill., had used disability benefits and Veterans Administration help to build up his savings. About seven years ago, he decided to invest in Florida home sites, with a plan to eventually live there.

He bought GDC lots in Port Labelle, in southwest Florida, and Port St. Lucie on the Atlantic Coast.

About a year later, his GDC salesman called and told him he needed to develop one of his lots. He couldn’t just leave them idle while the communities were growing, the salesman said.

He was urged to take what the company called a ″Southward Ho 3/8″ trip. Customers were flown to their planned communities and escorted by a GDC salesman there for three days. They were wined, dined, and told to buy.

Flynn said his salesman was with him ″night and day. He would take me out for food late at night and meet me for coffee in the morning.″

Flynn was persuaded to buy a large home with a swimming pool for $216,000. His Illinois attorney told him the price was too high, and GDC came down to $119,000. Like most GDC buyers, Flynn got his mortgage from a GDC finance company. And he accepted GDC’s own appraisal of the property’s value.

Flynn moved here in 1988; soon afterward, he wanted to refinance. He went to SunBank and was told his property was worth $92,000.

″I felt cheated and hurt,″ Flynn said.

The General Development sales pitches worked, Flynn said, because the prices, by Northern standards, seemed reasonable for Florida homes. And, he said, General Development was a big, well-known company.

″Most people felt the government wouldn’t let nothing like this happen - it couldn’t happen here,″ Flynn said. ″They’re sorry people if this is the way they’ve got to make their money. If they did me this way, I wonder what they did to other people?″

Attorneys, investigators and homeowner leaders can cite litanies of examples of buyers hit worse than Flynn - people who are trapped in homes that have wiped out their savings.

Mark Binstein, a veteran New Jersey-based land-fraud investigator who is banding GDC owners together, calls the operation ″a classic Ponzi scheme that was unconscionable and cruel.″ GDC habitually foreclosed on people after they had learned their property was worth far less than they thought, he said.

GDC once had a good reputation, and had been in business three decades. Harold Reecer, a Cincinnati-based GDC salesman, recalls the days when the company promoted honesty and letting the property sell itself.

But Reecer said he was fired for insubordination in the mid-1970s when he protested departures from that policy. New managers at General Development stepped up the pressure on salesmen and told them their first priority was getting buyers signed to contracts, he said. Let company lawyers worry about any problems, he said the managers told him.

GDC salesmen learned to tell ″outrageous lies,″ Reecer said. One salesman told buyers interested in Port Labelle that a monorail would be built to connect the southwest Florida town with Orlando, Reecer said.

Some people, though, think buyers should have been more wary.

″I have to ask these people, where were their damn brains?″ said Bill Duigan of Port Labelle, who worked briefly for GDC in the 1970s. ″It’s pretty silly to buy property sight unseen. You wouldn’t buy a car like this.″

Martin Veiner, a former college professor who lives in Port St. Lucie, is trying to organize the 220,000 residents of GDC’s nine Florida communities, but has found that many people act as if they deserve their fate: ″They say nobody put a gun to their heads. Then they say, ‘I’m dumb.’ ″

Veiner was not caught in any fraud; he bought his spacious home from a bank after GDC foreclosed on its buyer.

Still, he and all his neighbors are victims of the GDC mess, of overbuilding and severe infrastructure problems. ″It’s been said Port St. Lucie was platted as if they didn’t expect anyone to live there,″ Veiner said.

The 77-square-mile city’s population skyrocketed from 15,000 in 1980 to nearly 60,000 now. The city has only two major roads crossing the city and both have only two lanes. Traffic gridlock is a way of life.

Port St. Lucie is a family-oriented community, and there isn’t enough room for necessary schools, ballfields and parks.

And the roads GDC promised to develop? Much remains to be done. Some 230 miles of roads will cost at least $20 million to complete in Port St. Lucie.

Veiner and other homeowner advocates suspect the bill for road improvements will be much higher. To the north, in Palm Bay, it will cost an estimated $73 million to complete roads in GDC’s Port Malabar community.

Money for much of the work will come out of the homeowners’ pockets. Port St. Lucie property taxes will jump from $3.15 per $1,000 to $4.05 per thousand; utilities for homeowners such as Flynn have jumped from a little over $20 a month three years ago to about $200 a month.

General Development has begun negotiations with the cities and counties involved, offering undeveloped lots in most cases in return for settlement of its development obligations. GDC also is turning over the utilities it operated to the cities and counties.

The company, which filed for Chapter 11 bankruptcy reorganization in April after the fraud indictments, is struggling for survival.

It’s faced with myriad lawsuits, must come up with a court-approved restitution plan, and is trying to bring in money to keep operating while the delinquency percentage of the more than 77,000 people still owing payments on GDC properties has jumped to 51 percent.

Company spokeswoman Nelly Medel said General Development remains confident it can emerge from Chapter 11.

″We still have our assets. We have new management,″ she said. ″We’re trying to put all of this behind us.″

Veiner and other homeowner advocates doubt General Development can survive. It has more than 100,000 creditors; the bankruptcy hearings feature packed houses of lawyers, each vying for a share of a shrinking pie.

The company also faces class-action suits on behalf of the home and lot buyers. Their lawyers are going after not only GDC, but also after banks they say knowingly over-inflated mortgage values. And they’ll seek out more targets, including possibly GDC’s lawyers and its directors.

In the short term, GDC must satisfy the judge. The amount of fines and sentence faced by the compny, former president Robert Ehrling, and former chairman David Brown - who also pleaded guilty to conspiracy to defraud - will depend on efforts to renegotiate a plea agreement.

In addition, court-appointed special master Thomas Wood said he’s still having trouble getting GDC to agree to a restitution plan.

GDC originally offered to pay $100 million over 25 years to the homeowners covered in the fraud count, but Wood has said he wants more money, sooner.

″It’s just a mess,″ said Veiner. ″I don’t think we’re going to get full value for what we deserve - that’s unrealistic. I don’t know how it’s going to come out, I really don’t.″

End Adv for Sunday, July 29