But Clark’s business ventures unraveled. According to the U.S. Justice Department, his company, Cay Clubs, defrauded investors by raising $300 million to redevelop dilapidated vacation-rental properties in Florida, Las Vegas and the Caribbean. Regulators said it was a Ponzi scheme that relied on fraudulent purchases to artificially inflate the property’s values, including those in Clearwater. In 2016, he was sentenced to 40 years in prison.
Suing Over Fallout
Bruce Barnes, a lawyer based in Safety Harbor, Florida, who has represented those who sued Clark, says he has been dealing with the fallout from the Clearwater development for 12 years. Barnes said that in 2014 he began to look into residents’ concerns over why they were still paying assessment charges associated with the district’s debt.
That money was going to OppenheimerFunds, which purchased the debt in 2006 and 2007 for two of its mutual funds, including its high-yield municipal fund, according to court filings. That fund, the fourth-biggest of its kind with $7 billion in assets, has been known to make risky bets, including on debt sold by real estate development districts roiled by the subprime crash.
In 2016, Barnes sued the district and the mutual funds on behalf of a condo association at the Venezia, saying the annual fees between $1,400 and $1,500 were going to debt issued for a district that wasn’t legitimate. The lawsuit asked for OppenheimerFunds to refund the assessments, claiming the debt wasn’t used to benefit the community. Last year, the judge ruled against the homeowners while ordering the size of the fees to be reassessed, according to court records.
In a lengthy district board meeting with residents in August, Crumbaker, the OppenheimerFunds lawyer, said the bond proceeds did provide a benefit by funding land purchases and water and sewer services. He said the only risk that the firm took on was that the debt payments would fall short if individuals stopped paying their tax bills, not that the district would repudiate its obligations. “Otherwise, every city, county, school board, 600 community development districts in Florida, et cetera, would be doing the same thing,” he said.
After the judge sided with the investment firm, Dwyer mounted a takeover of the district board in November. He said OppenheimerFunds hasn’t provided details about how the assessment money is being used or how much debt is still owed. The 2017 financial report notes that the district couldn’t provide “evidential matter” on the trustee’s expenditures from the debt service fund.
“I’m not going to assess my community for a debt I can’t justify,” he said.
OppenheimerFunds is no stranger to such legal fights. Its funds were big owners of bonds issued by Puerto Rico, which is now working through a record bankruptcy. In September, it sued Harvey, Illinois, after it defaulted on bonds issued in 2007.
The district decided to file for bankruptcy in the hopes of getting the investment firm to the bargaining table, Dwyer said. “It might mean that the bondholders take a haircut,” he said. “They’re going to have to write down some of their debt, or walk away from all of it.”
This article was provided by Bloomberg News.