Part II Obama, Baghdad, Chicago, Rezko, Blogo, Auchi, Jarrett, Annenburg,
Part 2 of 10 The truth is out there!
Lawsuit says billionaire Auchi owes investor for Rezko’s stake in South Loop site
By:Â Thomas A. CorfmanÂ July 20, 2010
(Crain’s) â€” A Wilmette investor alleges that Iraqi-born billionaire Nadhmi Auchi cheated him out of the proceeds from the sale of Antoin Rezko’s stake in a large South Loop development site.
Mr. Auchi, chairman of conglomerate General Mediterranean Holding SA, already owned 50% of the sprawling, 62-acre site in a venture that included Mr. Rezko, who was a top fundraiser to former Gov. Rod Blagojevich.
Mr. Auchi structured his purchase of the rest of property so that Mr. Rezko could avoid paying Semir Sirazi, according to a complaint filed last week by Mr. Sirazi in Cook County Circuit Court.
At one time, Mr. Rezko’s development firm had planned to build about 4,600 residential units and 670,000 square feet of retail space on the site at Roosevelt Road and Clark Street. Instead, General Mediterranean put the site on the market earlier this year, although the litigation is likely to complicate efforts to sell it.
But Mr. Sirazi has a security interest that the defendants have repeatedly ignored, says his attorney, Gregory Scandaglia of Chicago law firm Scandaglia & Ryan.
“He has been financially hurt by the wheeling and dealing,” he says.
The complaint seeks an unspecified amount of damages and a court order giving Mr. Sirazi 30 days notice before any sale.
Joseph Ryan, a Highland Park attorney who represents Mr. Auchi and Luxembourg-based General Mediterranean, did not return a call requesting comment.
Because of Mr. Sirazi’s security interest, the proceeds from any sale by Mr. Rezko should have been used to pay off about $12.8 million that Mr. Rezko owes Mr. Sirazi, the complaint says.
A subsidiary of General Mediterranean acquired the rest of the site by forgiving $26.4 million in loans to Mr. Rezko, a friend and business associate of the billionaire, the complaint says. General Mediterranean also separately transferred about $4.4 million to Mr. Rezko and Michael Rumman, who was formerly the CEO of the company that managed the project and who was effectively given a 10% stake in the property, the complaint says.
The lawsuit is the latest legal salvo in Mr. Sirazi’s battle to recoup money from Mr. Rezko in connection with several business deals between the two one-time friends. He sued Mr. Rezko in 2006 and forced him into bankruptcy in 2008 when Mr. Sirazi discovered that Mr. Rezko had transferred his interest in the site and no longer had any assets.
Mr. Rezko was convicted on federal criminal charges in connection with a state pension fund investment scheme after a trial in 2008 in which Mr. Sirazi testified against him.
Mr. Rezko is not named as a defendant in this case.
But Mr. Rumman, a director of the state’s Department of Central Management Services in the Blagojevich administration, is named as a defendant because he allegedly participated in the scheme.
“Mr. Sirazi’s allegations are false, malicious and potentially subject to sanctions,” says Mr. Rumman’s lawyer, Robert Kent, a partner in law firm Baker & McKenzie LLP, in a statement e-mailed to Crain’s.
Ownership of the site has been held in a complicated series of limited liability companies and subsidiaries.
In 2005, Mr. Auchi’s General Mediterranean paid $131 million for a 50% stake in the site, which at the time was owned by an investment partnership that included Mr. Rezko.
After that purchase, the remaining 50% stake was controlled by a venture of Messrs. Rezko and Rumman. As a part of that deal, General Mediterranean was to receive 12% interest and preferred return on its investment ahead of any payment to the duo.
At the time, it seemed like a sky-high price, although Mr. Sirazi alleges that Mr. Rezko turned down an earlier offer of $175 million. The bidder is not identified in the complaint.
In 2006, to settle a dispute with Mr. Sirazi over debts totaling $7.7 million, Mr. Rezko gave him security interest in his stake in the property. Also as a part of the settlement, Mr. Sirazi guaranteed a short-term bank loan on the site, but was forced to pay $5.1 million when the loan went into default.
In the 2006 settlement, Mr. Rezko agreed to repay the $7.7 million in debts and the $5.1 million payment out of a sale of minority ownership stakes in the site. But the planned sale fizzled, and Mr. Sirazi was never repaid, the complaint says.
General Mediterranean increased its stake in the site to 60% by giving Mr. Rezko a $3.5-million loan, which it later forgave as part of the large pile of debts that were forgiven, the complaint says. It then paid Mr. Rezko $3.8 million and forgave a $200,000 loan to acquire the rest of Mr. Rezko’s ownership, according to the complaint.
As a part of the 2005 transaction, Mr. Rumman was essentially given a 10% stake in the site, which he sold through Mr. Rezko to General Mediterranean for about $1.4 million, the complaint says.
“Upon Mr. Rezko’s indictment in 2006, Mr. Rumman set out to disassociate from any business relationship with him and proceeded immediately to sell his shares in (the site). He had every right to do so,” says his lawyer, Mr. Kent, a former assistant U.S. attorney in Chicago, in the e-mail.