EDITOR’S NOTE: Feb. 21, 2014 – Since this story was first published on Oct. 23, 2011, three separate litigation efforts by Blackstone Financial Group Business Trust against Larry Myler and other investors in the Midtown Village project on State Street in Orem have been dismissed, and an investigation by the Utah Attorney General’s office ended without any charges filed.
Myler did not comment for the original story but has gone on the record for this update.
“I’m relieved to be vindicated,” Myler said. “It was painful to be falsely accused in my community newspaper, knowing that some people, some of my neighbors, might actually have believed the accusations.”
Myler said he spent hours meeting with the investigators at the Attorney General’s office discussing the details of the Midtown Village project and offering documented proof that the allegations were false.
“I didn’t do anything wrong so I insisted on telling what really happened before the State made any decisions about pursuing this baseless case. I was confident the investigation would completely exonerate me, and other investors. It did.”
On Feb. 18, the Assistant Attorney General in charge of the investigation sent a letter to Myler’s attorney stating, “After reviewing the evidence and considering the matter for some time now, the State has decided not to file criminal charges.”
OCTOBER 23, 2011
SALT LAKE CITY -- Each day, the ruin that was supposed to be Midtown Village in Orem sags a little more. Insulation flutters in the breeze, dirt gathers on discarded steel beams and the wind howls through the exposed corridors of the failed mixed-use real estate development.
Work on the dilapidated State Street construction site halted years ago because of financial difficulties, but now a lawsuit alleges
that some of those difficulties were the result of project funds being paid to individuals out of priority and in breach of the construction loan agreement.
Myler said that accusation is not true.
“Every single dollar was handled in an open and proper way to pay for project expenses -- without exception.”
The lawsuit was filed by Blackstone Financial Group Business Trust, which in April purchased an interest in a Midtown Village construction loan that originally belonged to BankFirst.
Blackstone bought some of the original notes from BankFirst and other participating banks, long after the project’s failure, for pennies on the dollar, according to Myler.
The lawsuit names as defendants Equity Title Insurance Agency, Inc., First American Title Insurance Company, First United Funding, Inc., Wells Fargo, Adella Pearson, Melanie Bastian, Todd Bybee and others.
Essentially, the lawsuit argues that money intended for the construction of Midtown Village was improperly given to the wrong people and for the wrong reasons. More specifically, it states that developer Larry Myler received $115,000 to pay off a personal line of credit at Wells Fargo, more than $260,000 to pay off a loan from Bybee and $310,091.03 to pay off a loan for his personal cabin.
Myler said the allegations that funds were misused or diverted from Midtown Village, by him or anyone else, are untrue.
“BankFirst had audit rights and knew what happened to every dollar. BankFirst never raised any concerns as the project was in progress because there was no reason.”
He said funds loaned by BankFirst for the project went through a title company escrow account, so were not distributed by Myler himself, but by third-party escrow agents, in accordance with loan documents and applicable state law.
"In June 2007," the lawsuit adds, "Equity Title improperly disbursed approximately $500,000 to pay off the first and second mortgage on Midtown principal, Larry Myler's personal residence."
Myler said these were loans he made to keep the project going.
“I borrowed money against my family home and cabin, and took funds from my savings and investments to cover project expenses when bills were due for Midtown Village and the bank funds hadn’t yet arrived in the escrow account to pay them,” Myler said. “I was doing everything in my power to keep the project alive, including making bridge loans to prevent contractors from leaving the site, or insurance coverage from lapsing. The financial records of the project show that clearly. Blackstone’s allegations focus wholly on me getting reimbursed, while conveniently ignoring the fact that I first loaned monies to the project.”
The lawsuit explains that Myler was one of the developers responsible for Midtown Village. Michael David Roberts, Blackstone's general counsel, said Myler is not named as a defendant in the lawsuit because he has since filed for bankruptcy.
Myler acknowledged that he filed bankruptcy.
“I lost more than any individual who invested in Midtown Village. Even after being paid back some bridge loans, I lost a net amount of $6 million of my own money, and was forced into bankruptcy. That’s a big hit for a minority shareholder to sustain, but I believed in the project.”
According to both Roberts and the lawsuit, Equity Title was allowed to disburse money for Midtown Village for three reasons: first, funds could be paid to the general contractor of the project for hard costs; second, other subcontractors also could be paid for hard costs; and third, the developer could be paid for soft costs.
But according to Sean Monson, an attorney representing Blackstone, Equity Title handed out money to other people and for other expenses. The disbursements were contrary to the contractual instructions and fiduciary duties binding Equity Title, the lawsuit argues.
In addition to the money given to Myler, the lawsuit also states that Bastian was paid $3 million and First United was paid $3.238 million, despite being junior lien holders and therefore not entitled to the payments.
Myler said he takes exception to these allegations.
“Melanie Bastian and First United Funding were outsider private lenders who made short-term bridge loans to help the project. They deserved to be paid back. BankFirst approved those repayments in advance, and as with the other loan repayments, they were run through the heavily-audited title company escrow account for all the world to see.”
The lawsuit alleges that the improper handouts resulted in serious cash shortages for the project.
"Midtown ran out of money before Midtown Village could be completed and certain subcontractors were not paid," the lawsuit states.
Myler acknowledges that, but insisted the collapsing real estate and financial markets were the causes of the project’s failure, not any improper use of loan proceeds.
“Well into 2008 my financial partner and I were looking for a new lending source to finish the project and several lenders were giving us positive initial responses, but in hindsight, we were wasting our time. We didn’t know it then, but looking back, that was an impossibility. The economy was in freefall.”
Workers on the project also continued working after it ran out of money and consequently were not paid, the lawsuit states, resulting in liens that have cause additional financial damages.
Monson said that Blackstone hopes to recoup the lost money, and the lawsuit demands a jury trial. The lawsuit also calls for punitive damages to be awarded to Blackstone.