A Bellevue investment firm is facing bankruptcy and legal trouble after allegations of raising millions of dollars from investors, many of whom are Chinese nationals and immigrants, then failing to finish promised real estate projects and repay investors.
Operating for around a decade, iCap raised money telling investors it planned to develop apartment complexes, mixed-use buildings and senior housing throughout Washington, according to court filings.
ICap and its subsidiaries operated more than two dozen affiliated companies and appeared to own at least 10 properties in the state, including sites in Seattle, Tacoma, Bremerton, Lynnwood and Vancouver. Some sites remain undeveloped despite promises to investors, lawsuits allege.
Trouble began for investors this spring when the company stopped paying monthly interest payments, citing challenges hitting the slowing real estate market.
“Rising interest rates and other unforeseen market factors have resulted in increased costs and reduced property values across the board,” then-CEO Chris Christensen wrote to investors in March, adding that these factors “severely restricted lending options” and “resulted in fewer transactions in the market.”
Since then, investors have filed at least six civil lawsuits in King County naming iCap. Some cases also name Chris Christensen and his brother Jim Christensen, who was the company’s chief operating officer.
In August and September, a King County judge halted any property sales or use of investor funds and ordered banks to freeze iCap accounts. Late last month, the company filed for Chapter 11 bankruptcy and Chris Christensen stepped down. A third-party management group, Paladin, is now managing the company.
Paladin Chief Restructuring Officer Lance Miller said in a statement to The Seattle Times Monday, “Our primary objective is maximizing value for investors and creditors.” The company “will use the bankruptcy process to efficiently address claims in these cases, including pending litigation,” Miller said.
Attorneys for Chris and Jim Christensen either did not respond to requests for comment or declined to comment, citing pending litigation.
It’s not clear how many investors bought promissory notes from iCap companies or how much the company owes, but bankruptcy filings list more than 2,700 people and entities owed money and total financial liabilities between $100 million and $500 million.
The company owes nearly $196,000 in payroll taxes to the IRS and $11,000 in property taxes to Snohomish County for a property in Lynnwood, according to bankruptcy filings. Its largest debts are to investors owed more than $3 million and up to $10.5 million each, according to court filings. iCap owes people and entities in a number of states and countries, including Washington state and China.
King County lawsuits say iCap executives attracted people to investments they claimed were “very safe” by promising to buy and develop land throughout Washington.
Dozens of Chinese investors are among those owed money, sparking a lawsuit this summer alleging iCap “specifically targeted Chinese immigrants who relocated to Washington and Chinese nationals with their marketing efforts.”
According to that case, a group of 28 investors invested more than $17.5 million and have not been fully repaid. “My clients — all of whom are from China, and many of whom do not speak English — invested their savings with iCap so they could improve their lives or the lives of their families here in the U.S.,” attorney John Bender said in a statement to The Seattle Times.
The investors “have been completely devastated by the revelations over the past few months” and “are committed to holding accountable those who are found to have misled unsuspecting investors or who have engaged in other misconduct,” Bender said.
The case alleges iCap and its executives committed fraud, misled investors about their development work and violated contracts and the state Consumer Protection Act.
Another lawsuit claims iCap also used some of its properties planned for redevelopment to secure loans worth more than the properties, chipping away at the equity backing up the investments.
An iCap subsidiary that owned a Tacoma property, for example, allegedly agreed to borrow $2.7 million, even though the site was assessed at “just shy of $2 million, meaning that there is essentially no equity left in this property” and another subsidiary that owned a Bremerton property borrowed nearly $896,000 although the property was worth $285,000, according to the lawsuit. Those practices “have effectively depleted any equity in the properties supposedly serving as security” for the investments, said the complaint filed in the case.
That case was filed on behalf of the company’s largest debtor, who paid various iCap entities more than $10 million, according to court and bankruptcy filings.
Other investors who are owed more than $100,000 each have also sued in recent months, alleging the company promised to repay them in installments but didn’t pay in full.
Small-time investors have lost out, too.
Hawaii resident Kathy Dean and her seven siblings inherited a $50,000 iCap investment after their mother died. She had invested in 2015 with expected repayment by 2018, but iCap repeatedly pushed back the repayment date, Dean said.
“The fact that they kept extending it [and] kept extending it was an indication to us that’s something funny here,” said Dean, who is owed $6,250.
On quarterly investor calls, Chris Christensen “would always start his calls talking about how great real estate is in Seattle,” Dean said.
Dean and other investors are still unsure whether they will see any of the money they’re owed. Paladin, the third-party company now managing iCap, told investors last month the bankruptcy process could take nine to 12 months.
Paladin plans to hire real estate advisers to assess iCap’s properties, determine those that can be redeveloped “with a clear business plan and financing” and sell the others.
“It’s important to note that while we strive for the best outcome, the eventual result of this Chapter 11 case remains uncertain,” Paladin told investors, “and we cannot assure any specific recovery for your investment.”
This story has been updated to correct the total investment amount of 28 investors who sued iCap.
