APRIL 24, 2020 UPDATE
Many people are contacting us to inform us about the fact that the Genesis group continues to extend their deadline for opting out of our lawsuit and to take their offer of $0.235 on the dollar. To be clear, after so much time, they are offering you less than ¼ of your original investment. Many investors have opted to proceed with our lawsuit, and clearly the Defendants are hoping to entice some of you to change your minds. We ask you for your patience, as the evidence here is quite compelling. Our lawsuit is continuing to progress and we are obtaining records to assist us in tracing how the Delacour property was acquired, and where the profits made on the sale to your group were shared. We have copies of the agreements for purchase and sale of the Delacour parcels that show the documents went through the offices of Genesis Land Development, prior to the Offering Memorandums that were relied upon by investors to assess the risks of this investment, were prepared. Our expert provides opinion that the agreements for purchase and sale, as they are not actual sale transactions, should not have been used to value the lands at the inflated values used, and the appraisals prepared for the Offering Memorandums should have referred to the date and amounts at which the lands were being acquired in order to properly quantify the value of the lands. In this case, one of the properties was not acquired until after the Offering Memorandum was issued, for a lesser price than it was represented to be worth in the Offering Memorandum, and the price at which it was sold to your group. And with the other parcel, it was acquired for $8.5 million, a few months prior to it being sold to your group for $23.6 million, or almost 3 times the acquisition price. This property had no change to zoning or permitting which could justify such a drastic price increase. And the Offering Memorandum and appraisal used to present this investment to you provided no explanation for the 300% increase in value for that particular parcel. These are just a few examples of things that were not explained to you in the Offering Memorandum. And so the argument being advanced in our claim is that the Offering Memorandums did not fully disclose all of the facts here in order for investors to properly assess the risks of this investment. Our claims are not yet proven in court, and I cannot predict how long this matter will proceed, or take. I can confirm that we have expert evidence that has raised issues and concerns about the investment and how it was presented to you in the Offering Memorandum. We continue to press this along and look forward to working on behalf of all of the investors that continue to remain in our lawsuit.
March 13, 2020 – UPDATE
I understand many of you are receiving reminders to provide Genesis with your opt out agreements to receive $0.235 on your original investment. I further understand that they argue that our lawsuit is without merit in trying to entice you to do so. I will remind you all that Genesis was originally asserting this distribution was going to be done in October or November of last year. Clearly, they did not get the level of participation they hoped to get because they delayed that distribution and are now trying to press limited partners to take their offer to give you back less than ¼ of your original investment, without a full explanation of why you sustained such a loss. We are encouraged that many of you have not opted out and are allowing us the time and opportunity to obtain the evidence required for you to properly evaluate what you should be paid in settlement of this matter and the wind up of the limited partnership.
Since my firm has taken over the file, we have obtained an independent, expert appraiser who has raised substantial questions with the $31.4 million valuation that was put onto the Delacour property sold to you in this limited partnership. The fact that the property had only been recently acquired for $14.8 million and was sold without any change to permitting, zoning or approvals, and failure to disclose that fact in the Offering Memorandum, and in the appraisal, are very problematic for the defendants in our claim. Additionally, we have looked into the Alberta Securities Commission sanctions that were imposed in the past against key officers of Genesis and found sanctions related to key officers, in another venture, related to concerns about how they dealt with one particular investment in a way that is quite comparable to this situation. Basically, with your investment, a Genesis insider was instrumentally involved in manufacturing the inflated price at which the Delacour property was sold to your limited partnership because it was based upon two agreements for purchase and sale that the price of the property was inflated to $31.4 million.
The validity of that valuation is in dispute in our litigation. Our expert says those agreements were not actual sales, and the property was worth closer to its acquisition price ($14.8 million) at the time it was sold to investors for $31.4 million. We are pressing our lawsuit along and seeking the records that still exist to demonstrate who put this together, and how profits were distributed on the sale at that inflated price. We will continue to keep you posted on our progress. Your patience is appreciated. We are making progress in putting our case together. We cannot predict how long this will take, or what the result will be. We can assure you, however, that we will be able to give you more information than you are being given now, so you can make a better informed decision in the future.
February 25, 2020 – UPDATE
A number of Investors are contacting us for individual updates. My apologies for not ensuring our website information was on our letter or emails. Please come to this page of our website for updates. Please do not call us or email us for individual updates, as we cannot do so. We will communicate through the website.
We have successfully brought application to obtain records related to the conveyancing transactions regarding the Delacour Property, as defined in our action. It is in this transaction that a profit of $16.5 million is alleged to have been created. We are trying to find the records to show who shared in that profit and how it was shared. We expect to have court Orders approving these records to be produced, and copies of the records, in the next month. We hope to then be in a better position to update investors on what happened in this investment.
We are moving forward and developing the evidence necessary to prove the claim. The Defendants continue to maintain they have a Limitation Act defence to this claim. The Plaintiffs continue to argue the nature of the claim was concealed from them. If the production and records show insiders from Genesis participated in the profits made on the sale of the property to your group for $31.4 million, and/or were part of creating a justification of that valuation of the property in non-arms length transactions, we believe that will demonstrate a foundation for this claim. We do not make any predictions about chances of success, nor do we give you a timeline prediction. We continue to believe that those investors that remain with us will be able to make a fully informed decision once we have all of the evidence. We are working to obtain it.
Your continued patience is appreciated.
UPDATE AS OF JANUARY 21, 2020 – INFORMATION TO ASSIST ON OPTING OUT DECISION
At this time, many Genesis investors have received, and are considering, the proposal being made by Genesis to take what will equate to $0.235 settlement against your original investment. Investors are informed that if you want to take that money now, you will have to provide Genesis with a form of Release and Settlement that will essentially preclude you from participating in our class action lawsuit later.
It is important for investors to understand that while we are not providing any guarantees of what will happen, the investor committee that is organized to help advance our claim is working hard with us to do so. We have focused our attention on the Delacour Property, which is comprised of two parcels of land. The land were acquired for approximately $14.8 million and then without being sold to a third party, some agreements for purchase and sale of those lands asserted that arms length parties were willing to pay $31.4 million for those same parcels, within weeks of their acquisition, and without change to their development permit approval status. The “benefit” of those agreements was effectively assigned over to the corporation and entity through which Genesis investors originally invested into the project and through that $31.4 million of your investment monies were paid for that property. So a profit of $16.5 million was created as a result. We are currently advancing court applications to obtain the trust records, to follow where the profits made on this property flip went. We are seeking to determine if any insiders of Genesis profited on those transactions.
A corporation controlled by Thomas Tang (TT Land Holdings) was part of those agreements for purchase and sale that created the alleged justification that the properties together were worth $31.4 million when sold to investors. Mr. Tang had been appointed through Genesis to take control over a division of Genesis at that time and eventually the corporation used in the agreements for purchase and sale, TT Land Holdings, became Gencap Equities. The Plaintiff group is alleging this is corroboration that the Defendants created an artificial value of the property through related party and/or non-arms length transactions. If this is proven to be the case, there is a strong foundation for the Plaintiffs’ claim to proceed. To be clear, we are not asserting that anything has been proven. Rather, we are currently taking steps to obtain the evidence and records necessary to determine who was involved in acquiring the parcels of land, and who shared in the profit on their sale to investors.
If the evidence demonstrates that any Genesis insiders participated in the purchase of the properties and/or shared in the profit created on its sale, we will be seeking to have the court determine the price at which the property should have been sold to investors. What we know is the property was acquired for $14.8 million. The Plaintiffs’ expert appraisal determined the true appraised value of the property at the time it was sold to investors was less than $14.8 million. And eventually the property was sold for less than $6 million (as compared to the $31.4 million your group paid for it). Because these numbers are so divergent, and the expert evidence is conflicting, we are making applications to court to obtain records to determine what actually happened.
If the court accepts that the property was sold at an inflated amount, the defendants will be obligated to pay more than what is currently being offered, in an amount to be determined, to settle with investors. The additional amount that the defendants will have to contribute will increase by the amount that the courts accept that it is proven an inflated price was caused to be paid for the property. If the evidence does not demonstrate that insiders participated in any profit, there is still a concern here because Mr. Tang was found to be a Genesis insider, in a prior matter before the Alberta Securities Commission. Just so we are clear – we do not assert that we know what the evidence will show. But if we demonstrate that the agreements for purchase and sale were not arms length transactions and potentially related party transactions, that will assist us with demonstrating liability in this claim.
If it is demonstrated that the Delacour property was not worth $31.4 million when sold to investors, a further complication is the fact that there may be additional argument that the damages to investors should include the interest and carrying costs that were incurred as a result of the shortfall on this investment. As you all appreciate, this investment had a shortfall, that led to short and long term debt financing, in an amount that was less than the $16.5 million profit that may be demonstrated to have been artificially created here. To be clear, this is not yet proven in court, and is an allegation that is being sought to be proven. We are seeking evidence to determine if the allegations can be proven. We are taking steps to obtain the evidence to determine who shared in the profit of $16.5 million that was created on the sale of this property to your investment group. That evidence may strengthen our claim. We have made an allegation in our pleading, and we are seeking the evidence to demonstrate if it is true.
It remains the view of our investor group that investors should be patient, and allow us the opportunity to complete our court applications, so people have more information, and can make a better informed decision of their risks here. While we look forward to assisting you, we request that you do not call our offices for individual advice, because there are over 800 investors here and we cannot give advice to everyone individually. If you have a legal question, please email it to Jackie@invictusllp.ca. If it is not covered in what we have released, and is relevant to everyone, we will edit our website content in due course to inform everyone. Our intent is to give everyone the same information, at the same time.
I thank you all for your patience and I look forward to representing those investors that do not opt to take the settlement offer being made by Genesis at this time.
GENERAL GENESIS INFORMATION – DECEMBER 1, 2019
Kevin McGuigan is pleased to announce that Invictus LLP has taken over the class action lawsuit being advanced in regard to the Genesis investment from 2007, related to the Airdrie and Delacour parcels of land that were acquired for the benefit of those investors.
The general terms of the lawsuit relate to the fact that investors raised approximately $40 million and it was used to acquire two parcels of land for approximately $50 million, so there was a shortfall on the initial subscription. The two properties were subsequently sold and recently Genesis has tried to payout a vendor take back mortgage that it had on title to the one parcel, which will ultimately result in those investors that accept the settlement as receiving $0.235 on the dollar from their original investment. Those that do not take their settlement now will remain part of our claim and will receive a pro-rata portion of our settlement.
The primary argument that is currently being advanced on behalf of our class action group is that the Defendants created an artificial value for the purchase price of the Delacour lands, as defined in the lawsuit. The Delacour parcel was acquired for $14.8 million but was sold to investors for $31.4 million, approximately, based upon agreements for purchase and sale of land, the benefit of which were assigned to the investors. The argument in our lawsuit is that those were not arms length transactions, the amounts in the agreements were not paid, they were not arms length transactions, and thus not the proper values to be used. If the plaintiffs’ arguments are accepted, the additional argument that will be made is that the Defendants will need to account for the lost profits and proceeds that were used to service the debt that was used to cover the shortfall. The argument of the Plaintiffs is the debt shortfall was a result of the price of the Delacour Lands being inflated.
The Plaintiffs’ appraisal expert has provided opinion that the Delacour lands were worth $12.8 million as of the date the lands were to be transferred to the proposed class of investors in our lawsuit. The current payout being offered to investors by the Defendants is entirely predicated upon the investors accepting that the Delacour property was actually worth the $31.4 million that was paid for it originally.
One further piece of information that investors need to consider in regard to whether or not to participate in our lawsuit is that the Delacour lands were eventually sold for approximately $5.8 million, which is the primary reason the settlement currently being offered to investors to close their investment is $0.235 on the dollar.
We have attached an investor participation form to enable those that are interested to participate in our lawsuit and to enable us to have your contact information so that we may email you to provide updates.
We look forward to working with you.