A Rochester developer who faces federal mortgage fraud charges connected to apartments in Buffalo and other cities has pushed back the sale of a significant part of his real estate portfolio until later this month.
Robert C. Morgan now expects to complete the sale to a joint venture with a Pennsylvania company by the middle of this month, according to his attorney, generating cash to pay off investors while providing stability to the properties.
Morgan, who was indicted in May on federal charges of mortgage, insurance and wire fraud, is selling about half of his portfolio, or 90 properties, to a partnership with the King of Prussia, Pa.-based company called Morgan Properties.
That family-owned company, which is owned by Mitchell L. Morgan, is reportedly separate and unrelated to Robert Morgan's Morgan Communities, based in the Rochester suburb of Pittsford. Neither the purchase price nor any other details of the transaction or partnership have been disclosed.
The deal was supposed to close in September. It is now expected to close in mid-October, according to a letter from Morgan attorney Joel M. Cohen to U.S. District Court Judge Elizabeth A. Wolford, who is overseeing both the criminal case against Morgan and a separate civil lawsuit by the Securities and Exchange Commission.
After closing, the Pennsylvania firm is expected to refinance nearly $627 million of debt on 53 properties. Additionally, Cohen wrote, Morgan intends to use the proceeds to pay off all the principal and interest owed to investors in a group of funds that the developer had used in recent years to finance his deal-making.
Those funds were the subject of the SEC's lawsuit, which alleges that Morgan ran a fraudulent scheme with the investment funds by using one to pay off another.
According to a court-ordered accounting of the funds, also detailed in new court documents, the funds have $68.4 million in assets, but owe investors more than $63 million. Those investors had put in as little as $10,000 and as much as $2.18 million.
Meanwhile, Morgan continues to sell off other properties, even as prosecutors sought to pressure him by threatening to seize additional apartment complexes because of allegedly fraudulent loans.
The government initially filed foreclosure notices against a dozen properties cited in the May indictment, although it later agreed to allow the sale of the Eden Square Apartments in Cranberry Township, Pa. It also agreed not to object to certain sales of properties that aren't involved in the case, such as the Morgan at North Shore Apartments in Pittsburgh and the Highland Club Apartments in Watervliet, outside of Albany.
But it has since filed forfeiture claims against another 13 properties in the Rochester, Syracuse and Watertown areas; in Pittsburgh and York, Pa.; and in Chicago.
In those cases, prosecutors cited not only the existing fraud charges, but also a continuing investigation that found Morgan falsified financial statements and submitted fake payoff letters to lenders to fraudulently obtain loans used to buy or refinance each of the properties.
According to the court filing, Morgan falsely claimed the new loans would be used to pay off what the government calls "fictitious and otherwise nonexistent debt," while a special bank account created and controlled by Morgan was used to collect the proceeds from the fraudulent loans by wire transfer. Prosecutors said he concealed the violations of loan terms that would have otherwise triggered default.
The documents allege Morgan obtained $253 million in loans on the 13 properties, after inflating the income, rent rolls or purchase prices. He then used the proceeds not only to pay off previous loans to banks and hard-money lender Monroe Capital, but also transmitted $2.04 million to Buffalo mortgage broker Frank Giacobbe and $31.4 million to entities he controls, according to the documents.
None of the targeted properties is in the Buffalo area.
Morgan, who rose to prominence in the Rochester area after more than 20 years of real estate acquisitions and developments, built a network of companies that had accumulated 180 properties and 36,000 units in 14 states That includes the Buffalo area, where he owns or controls several thousand apartments. He has pleaded not guilty.
In Buffalo, Morgan had partnered with several local developers on projects – including TM Montante Development's planned reuse of the former Millard Fillmore Hospital at Gates Circle. That venture received nearly $6.5 million in advances from Morgan's investment funds.
But his aggressive financing methods – first publicly documented by The Buffalo News in September 2017 – drew the scrutiny of the FBI and U.S. Attorney's Office, leading to the 114-count indictment against Morgan; his son, Todd; his former finance chief, Michael Tremiti; and Giacobbe.
Morgan's nephew, Kevin; another mortgage broker, Patrick Ogiony; and Morgan's former chief operating officer, Scott Cresswell, have all pleaded guilty to federal charges.
Story topics: Aurora Capital Advisors/ bank fraud/ Frank Giacobbe/ insurance fraud/ jonathan d. epstein/ Morgan Communities/ morgan management/ Morgan Properties/ mortgage fraud/ Patrick Ogiony/ Robert C. Morgan/ wire fraud