According to an article published in February 2018 by Bloomberg News, February 22, 2018 marks the date that the Jody Kriss v. B.Group LLC, was settled. The lawsuit that linked money fraud, was filed in 2010. The two parties involved were Jody Kriss, employee and former finance director at the company and a large, multi-million dollar private company and developer of Trump Soho in New York City that specializes in international real estate investment and development and provides luxury residential, retail, resort, hotel and mixed use projects.
The Bayrock Group, LLC was founded in 2001 by Tevfik Arif who originally owned the company in Kazakhstan and Turkey, and expanded it into the U.S. In 2003, Felix Sater was brought into a partnership agreement with Arif. They agreed on two company terms: Arif was to contribute capital to Bayrock Group and Sater would manage company affairs in exchange for 50% of profits earned from investments.
According to the Third Amended Complaint, two allegations were brought up against the partners, in addition to Sater’s criminal conviction record that accused him of assault in 1991, and racketeering based on alleged stock manipulation and money laundering, in 1998. The TAC’s allegations claimed that: 1.Arif and Sater agreed to operate in a way that maximized profits, at expense of all investors, and concealed Sater’s criminal history and 2. They initiated an enterprise based on the partner agreement.
The company grew in size in 2003 and additional entities were formed and contributed to their enterprise. Between the times on 2003 and 2006, the group was in connection with specific real estate developments and brought in large profits. However, unfortunately, more allegations were made claiming that “the entities were managed and operated as a means to enrich the owners personally at the expense of third parties”. These claims were linked to the accountants that were employed at the firm that claimed their duties were assigned in a manner designed to create false impression that the Bayrock Group and its investments were operating in a “routine, and above-board manner”.
Additional fraud allegations as indicated by the Third Amended Complaint accused instances of concealment of information through material information concealment, bad faith practices and illegally structured payments. The material information concealment allegation was made in connection to Sater’s 1998 criminal conviction that accused him of one count of racketeering though familiarity with converting corporate assets into personal income without triggering detection. The second allegation was due to bad faith practices observed in Arif and Sater’s partner agreement where they agreed to simply ignore contract provisions and promises, along with IRS Regulations, to increase their take from the enterprise. Last, were the illegally structured payments Sater received between 2003-2007 that were not treated as wages and committed tax fraud.
Claims also found that one of the investment fraud targets included the Trump Organization. In 2003, Donald Trump was introduced to the company and settled with several of their developments, that started their marketing under the Trump brand. Throughout their business years, they did not notify the Trump Organization of the TAC Allegations that were made against them.
Their last major fraudulent allegation was made in 2007. During this time, there was alleged fraud with FL Group. The fraud occurred when the Group sold a major share of its projected profits to an Icelandic Investment Company, known as FL Group, and had generated $227.5 million dollars in profit. The company sold $50 million in exchange for equity interests that would entitle 62% of total profits. According to TAC, the transaction affected a sale of membership profit interests which were not sufficiently owned, made a large transfer and caused infringement upon FL Group.
Jody Kriss Affiliation
Jody Kriss joined the group in 2003. He had known Felix Sater from a previous real estate company that he worked for in 2002. Kriss received a proposal from Felix Sater to provide professional services for his company in exchange for 10% of profits earned from investments. Kriss accepted Sater’s offer and served as Director of Finance from 2003-2007.
The work experience got complicated when Kriss was later offered several additional compensation agreements for his work. In 2004, he was offered a new compensation agreement: a full-time position for the same job he currently held, for an additional 3-year term, making $10,000/month plus 10% membership interest in operating agreements, and an additional set of reimbursements from the company’s capital contributions. One year later, the compensation agreement was updated, known as the “2005 Kriss Agreement”, that offered him a non-dilutable 10% non-voting membership in the company and each of its entities.
It 2007, Kriss inquired on payments from his third compensation agreement and was responded with a $500,000 bonus that refused to pay any distributions. Due to this incident, he resigned in mid-September 2007 and was turned down for payment one year after resigning and believed that the company owed him money.
The case has had a long and complicated history, and faced more than five years of resolution of issues, various series’ of court orders that were issued and extended for serving times. The lawsuit was settled on February 22, 2018 in favor of the plaintiff, Jody Kriss. According to a New York court claim, regarding the complaint the real estate investment company, “an initial complaint alleges a basic scheme of defrauding investors by misrepresenting earnings and profitability; an allegation of accounts receivable manipulation in an amended complaint will relate back because it is a natural offshoot of that scheme”. The court issued that the plaintiff must show a pattern of racketeering activity, which is defined as “a variety of offenses including mail fraud and extortion, punishable by law”. Upon considering the company elements of association, business conduct and even conspiracy, the court ruled that they breached multiple contracts and committed multiple torts. The court closed the case based on interference with contract as governed by New York state law in the U.S. District Court of Southern New York.