Investor tied to troubled bank loans charged with fraud by US

A California real estate investor whose firm was accused by Western Alliance Bancorp of an almost $100 million fraud was criminally charged by the US, the latest fallout from a portfolio of commercial properties that sparked credit concerns at several banks last year. Mahender Makhijani, 44, was charged Wednesday with bank fraud for allegedly falsifying documents to get a loan, according to a statement issued by the US attorney in Los Angeles. The case is significant because Phoenix-based Western Alliance, along with another regional lender, Salt Lake City-based Zions Bancorp, spooked their own investors late last year when they disclosed potential losses from bad loans amid other credit hits spurred by the collapse of Tricolor Holdings and First Brands Group that rattled the stock market. Makhijani, through Newport Beach, California-based investment firm Cantor Group V LLC that he controls, took out loans of almost $100 million by pledging a portfolio of properties as collateral even though he didn’t have first-lien rights to the real estate, according to prosecutors. The bank that was allegedly defrauded isn’t identified in the criminal case, but the statement pointed to a lawsuit by Western Alliance against Cantor Group “in connection with the alleged fraud” that was filed in August in Los Angeles state court. First-lien rights would let the bank recover value from the properties ahead of other creditors in the event of liquidation, while a second or later lien is worth much less as collateral. If the bank had known, it would have considered Cantor Group to be in default and demanded immediate repayment of those loans in full, according to prosecutors. A spokesperson for Western Alliance declined to comment on the criminal case. Regarding its civil case against Cantor Group, he said the bank believes it can recover its loan losses in the future from multiple sources. Most of the properties identified in the Los Angeles lawsuit have been either foreclosed upon or are in receivership, Bloomberg News has previously reported. In May, an arbitrator issued an award of about $1.34 billion after concluding real estate owner Mohammad Honarkar was “fraudulently induced” into doing business with Makhijani, who was found to have breached part of their agreements when arranging financing for hotels, apartment complexes and other commercial real estate. A lawyer who represented Makhijani in the arbitration didn’t respond Wednesday to a request for comment. The electronic court docket for Makhijani’s criminal case wasn’t immediately available. Zions Bancorp also sued Cantor Group for fraud and had decided to write down about $50 million of loans. A representative for Zions didn’t respond to a request for comment. The fraud came to light at a delicate moment for the financial markets, with credit quality already under scrutiny after the high-profile bankruptcies of Tricolor and First Brands that cost lenders millions of dollars. Investors feared that more fraud cases could surface and spread through the financial system, while banks argued that these were isolated episodes and that they themselves had been deceived. Bank regulators including the Federal Deposit Insurance Corp., the Federal Housing Finance Agency, the Federal Reserve Board and the Consumer Financial Protection Bureau participated in the criminal investigation, according to the statement. “Today’s arrest demonstrates that those who allegedly engage in fraudulent activity that impacts the safety and soundness of financial institutions will be held accountable for their actions,” Brian Tucker, Special Agent in Charge at the Office of Inspector General for the Fed and CFPB, said in the statement. --By Yizhu Wang (Bloomberg)

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Investor tied to troubled bank loans charged with fraud by US

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