May 13, 2016 at 4:33 p.m.
Collateral damage: Other Eliason investors seek justice
Collateral damage: Other Eliason investors seek justice
Of those investors, only 19 were involved in the deals that would eventually lead the state to charge each brother with 10 counts of securities fraud related to conduct prosecutors say took place in the fall of 2009.
The state Department of Justice has alleged the brothers failed to inform potential investors in a new TIC (tenancy-in-common) company that their company did not have the finances necessary to stay in business. The charges were filed in Vilas County Circuit Court Feb. 26.
Only those 19 people have an opportunity to receive restitution should the brothers be convicted, but there are other investors who say they lost their savings and are searching for some form of relief.
The June 1, 2010 Lakeland Times article announcing the imminent closure of Eliason Inc. noted the stakeholders had refused to agree to a restructuring plan that could have prevented the company's collapse.
At its height, Eliason Inc. was booming, having purchased and syndicated about $450 million in institutional real estate since 2004, often in a process known as tenancy-in-common (TIC) agreements.
According to investopedia, tenants in common (TIC) are co-owners of an undivided interest in real property. Tenants in common each own a separate and undivided interest in the same real property and each has an equal right to the possession and use of the property.
These TICs were the foundation of the Eliasons' financial empire but would lead to the company's downfall, the state alleges in the criminal complaints.
Some of the investors who lost money when Eliason Inc. went out of business were part of a TIC while others held promissory notes. Some paid with money from their individual retirement accounts (IRAs), funds usually enjoyed during a person's golden years.
The losses changed retirement plans and forced belt-tightening by those who spoke with us. Banks, and their shareholders, are also on the hook for millions of dollars in losses for defaulted loans the brothers used to buy their TIC properties.
Al and Jean Gabardi, who live in Milwaukee and own a small vacation cottage on Dam Lake, along with Al's sister-in-law Myong Cha Gabardi, say they lost over $550,000 on promissory notes.
Don and Cathy Brandenburg, who also live on Dam Lake, say they lost $800,000 through both promissory notes and a TIC deal.
Both couples said they were surprised when no charges were filed in connection with their losses. After all, it was the collapse of their investments that foreshadowed the financial instability of the Eliasons' business, they claim.
In the end, neither couple knows whether their losses are merely investments gone bad or something more serious. The Brandenburgs say they have been interviewed by state and federal investigators but have heard nothing since. And answers are hard to come by: the Department of Justice tried unsuccessfully to have a gag order issued in this case, and it declined to comment for this article.
Instead, the Brandenburgs and Gabardis watch from the sidelines as the criminal case against the Eliasons unfolds. Meanwhile, they try to get by despite the loss of their savings.
What is alleged?
The criminal charges against the Eliasons focus on 10 deals that took place between Aug. 21 and Sept. 30, 2009.
The charges stem from alleged "misstatements and omissions made by Brian and David Eliason, personally and through their corporation, Eliason, Inc.," leading up to the sale of investment contract contracts (securities) in a new company, Eliason Combination Fund, (ECF) LLC, the complaints state.
ECF was to be a TIC partnership involving two single-tenant retail properties and four apartment complexes, the state alleges.
These properties were already "owned" by the investors through TIC agreements. As part of the new deal, the 19 alleged victims transferred their share in the property to the Eliasons for a membership in the LLC equal to their ownership in the involved TICs. ECF would own the rental properties and the alleged victims would be paid monthly cash payments as a return on their investment.
At the time the contracts (securities) were sold, they were marketed to potential investors as being supported by the cash reserves of Eliason, Inc., despite warnings from the company's auditors that the business would likely close by the end of that year because their bank had refused to make additional loans and the company had huge net losses for 2006, 2007 and 2008, the complaints state.
The cases hinge on whether the state can prove the financial disclosure information provided to the 19 investors failed to adequately warn them of Eliason Inc.'s true financial status.
The state further alleges seven of the alleged victims were age 65 or older, triggering an enhancer that increases any potential prison sentence by five years and the maximum fine by $5,000.
But what of the other people who lost money when Eliason Inc. went under? Investors who told the River News they were repeatedly assured that they could get their money back any time. "Just ask for a check," they say they were told.
Meet the Gabardis
Al and Jean Gabardi lent money to the brothers for a steady interest payment over the life of their promissory note.
"We were thinking that it was an investment for us because they had been in the investment business for some time and people spoke well of them," Jean said. "And Al's sister (Gina Molgaard) had good results with them for some years, I don't even know how long, and she suggested we go with them, which we did. And in the end, we all lost our money."
Molgaard would lose $2 million in total when the dust settled.
The Gabardis said the Eliasons had a reputation for being very good at making money for their investors. Indeed, the couple said their initial investments, testing the waters, were encouraging.
Al said the couple started investing with the Eliasons in 2003 with a three-year promissory note.
"That went well, so then we signed a 10-year note," he said.
For a while, the Garbardis received regular payments, but that eventually changed.
"Things started going south," Jean said. "Their finances became very shaky."
By then the damage was done:
• Al invested $220,000, which had accumulated value to $253,560.97 before being dissolved on June 30, 2010.
• Jean invested $82,000, which rose in value to $93,923.75 before being dissolved on June 30, 2010.
• Myong Cha Gabardi invested $43,000, which grew to $48,060 at the end of 2009 before it, too, was dissolved on June 30, 2010.
• Al and Jean also had a separate two-year note worth $50,000 which was dissolved on May 30, 2010.
"The month before it was due, they dissolved it (the last note)," Al said.
The Gabardis' investments were paid for with money from their Individual Retirement Accounts (IRAs) and they lost their entire retirement savings.
"That was our IRAs, his and mine," Jean said.
Between the three of them, the Gabardis are out over $550,000.
"And that's just since 2010, that doesn't include what we lost in interest because we haven't gotten anything since then," Jean said. "Not even the principal, for God's sake."
No legal remedy
The Gabardis said they were unsure if there was a way to hold the Eliasons accountable for the losses. They were aware the state was investigating the brothers but were unsure of the scope of the probe.
"We didn't do anything with the big thing with David and Brian because we weren't sure," Jean said. "We knew the investigation was going on, but we could never get an answer if they were investigating the notes. We thought, eventually, it would fan out, once they figured out the combination funds and the TICs. We thought they would then extend to the notes, but apparently that didn't happen."
At this point, Jean said they aren't holding out much hope of getting their retirement savings back.
"Not for the foreseeable future," she said. "We have not seen a dime from them."
The Brandenburgs
Don and Cathy Brandenburg are longtime residents of the Sugar Camp chain. They, too, are bewildered by the way the state has chosen to handle this case.
"I was concerned that the state decided to just go on the combination fund because it was actually the TICs and the notes that came before that," Don said. "I can't believe we held off as long as we did because I wanted to do something very different very early on, but everybody - and when I say everybody, it was one or two persons - decided that we ought to wait because the Department of Financial Services was doing the investigation on the entire situation, which would include the combination fund, the TICs and the notes."
Brandenburg said he and his wife were interviewed by investigators from the DFI.
"They had us in there for about an hour-and-a-half. They actually recorded it and filmed it. Not only us, there were a lot of people they interviewed in regard to this. It took them three days," Brandenburg said. "It was a situation where we heard they would be done in three months. And then three months would come and go and it was 'we'll be done by Christmas,' and now Christmas had come and gone and nothing happened. And after a period of four years, they finally turned it over to the DOJ, and they worked on it for a period of time. Then we got word that they were at a standstill because the attorney who was working on the case had left for a better job."
Surprised by charges
When the charges were finally announced in late February, Brandenburg said he was "most definitely" surprised that the deals involving notes and TICs were not included.
"I just could not believe it," he said. "I assumed, especially the fact that the notes and TICs occurred ahead of the combination fund. I have tried to call down to the DOJ and asked to speak with (lead prosecutor) Mrs. (Amber) Hahn about the situation. And, of course, I know she was up here before this ever started and told those 10 people not to contact her but to contact the lady in the state's attorney's office, and she would contact her."
Brandenburg said he has made numerous calls, and left messages with the DOJ, pointing out his case is not part of the 10 criminal counts.
To this day, he said he has not received an explanation as to how the Eliason' alleged actions related to the combination fund are different from their alleged conduct with the notes and TICS.
Bigger loss
The TIC the Brandenburgs invested in was a group of nine apartment buildings in Ohio. Brandenburg said he has a list of the 22 other investors in the TIC.
"I know that at the time that we had bought it, I pointed out to (the saleswoman) how important it was that we were not getting into something that was a little bit shaky, and she guaranteed us that the Eliasons, on something like this, would always go spend some time going through the papers and so forth, looking at the past records as far as occupancy, what the business was doing and so forth. She assured us, at any time, if we wanted our money back, because I told her we like to stay liquid in case something comes along that we would want to be able to purchase or whatever, and she said 'No problem. Anytime you want your money back, just give them a ring or stop in at the office there.'" Brandenburg said. "Because we've known the two boys' dad (Don Eliason) for 40 years, we trusted them, and that was, I guess, the wrong thing to do."
When the Eliasons' business started imploding, the Brandenburgs received phone calls notifying them of the current situation, Don said.
"We used to go to Arizona for the winter and I had gotten a phone call from Brian saying what they were doing was just paying the interest on the notes and interest on the TICs," Don said. "They said they would not be able to pay the full amount. What they were going to do was pay half of it and the other half would go toward the principle. They said that things were just a little bit tough at the time, and they would have to do that for a short period of time, they figured. We figured that was all right. It wasn't what we wanted, but if that's the way it had to be, that's the way it had to be."
At first, Brandenburg said he tried to convince his wife they would get their money back, but it soon became clear that wouldn't happen.
"When they had called us out in Arizona and told us they were only going to be paying half, it was a short time later that they called and said they can't even do that," Don said. "We happened to come back like a month later from Arizona and the first thing we had to do was go to town and get groceries. We picked up a paper and the front page said 'Eliasons close their doors.'"
He said they went straight to the Eliasons' offices but the building was locked.
"I called them on the phone and they were on their way to Rhinelander, and they said 'We're on the road to Rhinelander, we'll talk to you tomorrow.' And I said, 'You're going to talk to me right now, you get your butt back here. I'm sitting right here at your office, my wife and I.' And I remember when they got back, both David and Brian, on more than one occasion during that discussion, saying 'Don't worry, you're going to get your money back.'"
He said the assurances continued, right up to the last time he was in Brian Eliason's office.
"And we haven't seen penny one. I did call David several months ago now, and he said, 'We would like to pay you, but there is only $50 in that account,'" Brandenburg added.
The relationship between Brandenburg and the brothers grew so rancorous that David Eliason eventually filed for a temporary restraining order against Brandenburg. The order was granted Oct. 18, 2011 and expired in October 2015.
Brandenburg asserts he never threatened either of the Eliasons to the point where a restraining order was needed.
After the fall
Both the Brandenburgs and the Gabardis have had to make changes as a result of their financial losses.
The Gabardis may have to sell their lakeside vacation cottage outside Sugar Camp.
"We can't afford to have work done on maintenance on our house here," Jean said. "We try to do everything ourselves because we just can't afford to have someone come and do the yard work and the snow shoveling and the gutters and all that kind of stuff. So we try to do as much of that as we can, but Al's going to be 80 years old and I'm 75, so it's not so easy to do all this stuff. He holds his breath every time I go up on the roof."
"She won't let me go up on the roof anymore," Al added.
The Brandenburgs, who once owned a couple of resorts on Dam Lake, have also been forced to downsize. Brandenburg said one of their fellow TIC holders sought the advice of an attorney in Wausau who recommended they hire a lawyer specializing in financial services law.
So far, no decision regarding a civil case has been made.
"I don't know if civil action would do any good," Brandenburg said. "I'd hate to send a lot of money into something when we have already lost $800,000. We had to sell our house in Arizona, we have our house here for sale, because the $800,000 (we lost) was going to be what we were going to use for our retirement."
Federal investigation?
Brandenburg said he and his wife met with an agent from the Federal Bureau of Investigation at the end of April.
"The agents spent about three hours with us and we had all our stuff (paperwork) laid out," he said. "We had that spread out for him, and he would look at various pieces of it, and I said why don't you just take it all with you because it's a lot."
The pages for the TICs numbered 200 to 300 while the notes consisted of 10 to 20 pages of documentation.
Brandenburg hopes that the evidence supports criminal charges and that the authorities will "go ahead and prosecute."
When asked to comment on Mr. Brandenburg's suggestion of criminal wrongdoing, defense attorney Stephen Kravit, who represents David Eliason, replied, "We will not comment on unsupported allegations by angry people. The Eliasons are charged in Vilas County with crimes they did not commit, and all effort is being directed at defending what is pending in court. Mr. Brandenburg was not one of the investors in the fund at issue."
What should justice be?
So what would Brandenburg consider to be a sufficient legal solution to his situation?
"The perfect solution for me would be them behind bars, and secondly to have $800,000 in my pocket, plus the interest on it from the time we have gone without it," he said. "But that's not going to happen. I mean that's dreaming to think that way now."
The Gabardis are also hoping additional charges will be brought against the Eliasons related to their failed investments.
"I would be glad if they did," Jean said. "I'd welcome it. Our thought is if they are indicted on these 10 felony charges of securities fraud, then I would hope we would have a little motivation to go for some action here ourselves. But they get these high-powered attorneys. They have this Kravit, who is an expert in that field, and if he wins these 10 counts what recourse would we have on ours (in court)?"
Brandenburg said it did not escape his attention that a number of the investors who lost money with the Eliasons are older people.
"We're all older," he said. "It seems like that's all that are involved in this because that's who they (Eliasons) hit on, older people who had some money. I talked to another guy from California and it sounded like it was a repeat of us. They had a real nice vacation home they had to sell because they ran out of money."
The Eliasons are scheduled to appear before Judge Leon Stenz Aug. 4 for a motion hearing. In a separate but related case, their attorneys were expected in a Dane County courtroom Friday for a hearing on a motion to quash a subpoena issued by the DFI to attorney Terry Nelson. The DFI wants to depose Nelson about the guidance he provided the brothers related to the financial disclosure at the heart of the criminal case. Kravit has argued the DOJ is attempting to circumvent the discovery process because Nelson would be deposed without Kravit or Dean Strang, who represents Brian Eliason, present to observe.
Jamie Taylor may be reached at jtaylor@ lakelandtimes.com.
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