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United States v. Freed

United States Court of Appeals, Seventh Circuit

April 22, 2019

United States of America, Plaintiff-Appellee,
Laurance H. Freed, Defendant-Appellant.

          Argued February 7, 2019

          Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 13 CR 00951 - Robert M. Dow, Jr., Judge.

          Before BAUER, HAMILTON, and Brennan, Circuit Judges.

          BAUER, Circuit Judge.

         It appears that Laurance Freed did everything he could to keep his real estate business alive. Unfortunately for Freed, much of that was illegal. Freed lied to prospective lenders about the availability of collateral and to ensure those lenders remained in the dark about numerous defaults, he lied to the City of Chicago. The government also proved that Freed entered into loan agreements with no intention of abiding by their terms. We affirm Freed's convictions for bank fraud (18 U.S.C. § 1344); mail fraud (18 U.S.C. § 1341); wire fraud (18 U.S.C. § 1343); and making false statements to a financial institution (18 U.S.C. § 1014).

         I. BACKGROUND

         Laurance Freed was the president and chief executive officer of Joseph Freed and Associates ("JFA"), a real estate development company. Freed also created and managed several real estate ventures including Uptown Goldblatts Venture, LLC ("UGV"). UGV was responsible for developing a building in the Uptown neighborhood and secured tax increment financing ("TIF") from the City of Chicago to fund the project in 2002. Tax increment financing is a mechanism for funding projects approved by the Chicago City Counsel. After identifying a region in need, the city assesses the property taxes collected in that area and freezes the determined amount in place. Taxes collected in subsequent years that exceed that amount are tunneled into the TIF program. The city issued two TIF notes that entitled UGV to the payment of TIF funds: a redevelopment note for $4.3 million and project note for $2.4 million. UGV was required to file an annual requisition form with the city that certified, among other things, it was not in default on any loans and it had not entered into any transactions that would harm its ability to meet its financial obligations. If any event of default occurred, the city would be discharged of its obligation to provide UGV with TIF payments.

         Freed obtained a loan from Cole Taylor Bank in 2002 that was secured in part by the $2.4 million project note. This agreement provided that attachment of any security interest or lien to the collateral used to secure the loan would constitute an event of default.

         In 2006, two other Freed entities entered into a loan agreement with a bank consortium for a $105 million line of credit. The parties referred to this as "the big line of credit," as shall we. To secure this loan they pledged as collateral properties known as the Evanston Plaza and the Streets of Woodfield, and Freed personally guaranteed $50 million of the loan. UGV subsequently entered into an agreement to become a borrower under the big line of credit and pledged the $2.4 million project note as collateral. UGV represented that it owned the note free of any encumbrances despite the fact that the TIF note was already pledged to Cole Taylor. In August 2008, a representative from Cole Taylor sent an email to Freed reminding him the project note was collateral in their still-outstanding 2002 loan. Freed forwarded this email to JFA's lawyer who informed him that the project note was double-pledged-once to Cole Taylor and once for access to the big line of credit. This constituted an event of default under the Cole Taylor loan agreement.

         By fall of 2008, Freed had withdrawn millions of dollars from the Streets of Woodfield to meet the ongoing financial obligations of his various properties and projects. Opposed to this tactic and citing concerns that these withdrawals would leave them unable to meet property tax obligations, the chief financial officer of JFA resigned. JFA failed to make its payment on the big line of credit in November 2008, an event of default on this loan. Approximately $900, 000 in taxes were due on the Evanston Plaza property in November which went unpaid as well.

         Freed sought a $10 million loan modification from a bank consortium to address these issues. Freed gave presentations to the bank consortium on December 15, 2008, and January 20, 2009. During these presentations Freed presented slides that contained three potentially fraudulent statements. The first indicated that the Streets of Woodfield could serve as collateral for the loan modification, but failed to explain that approximately $3.6 million had been withdrawn from the property. Second, a slide indicated the Evanston Plaza property could serve as collateral for the loan modification, but failed to alert the consortium of the $900, 000 in unpaid taxes. Finally, a slide indicated the project note was available to serve as collateral and worth $2.4 million. In truth, the project note was worthless to the consortium since it was already serving as collateral for two different loans. Furthermore, the payments already made by the city had decreased the value of the project note to $2.1 million.

         Bank of America was willing to provide the loan modification and Freed signed the agreement on April 2, 2009. The agreement prohibited withdrawal of funds from the Streets of Woodfield unless the money that remained with the entity was sufficient to cover property tax payments and security deposits for all tenants. When Freed signed the agreement the Streets of Woodfield had only $19, 000 in its reserves, a tax obligation of around $4 million per year, and several tenants with security deposits. The next day, when funds were distributed to the Streets of Woodfield, Freed immediately withdrew $273, 000 and in the following weeks made seven withdrawals totaling around $1.3 million.

         Shortly thereafter, Cole Taylor sought to amend the UGV loan and discovered the project note had been double pledged. Cole Taylor drafted an amendment that stated Freed would obtain a release of the project note from Bank of America by October 2009. One of Freed's associates at a meeting with Cole Taylor represented that UGV was already in talks with Bank of America to obtain a release. But Freed never discussed the release with Bank of America and they failed to even discover the double pledge until 2010.

         The final part of Freed's scheme was the annual requisition forms he provided the city pursuant to the TIF note agreement, which required him to certify UGV was not in default on any loans. Freed claimed none of his entities were in default in signed affidavits he provided the city ...

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