Demonstrating the importance of full and accurate disclosure, a Chicago commercial real estate developer faces a maximum sentence of 230 years in prison for misrepresenting his company’s finances. After a two-week trial, on February 24, a jury found Laurance Freed, president of Joseph Freed and Associates LLC (JFA), guilty of bank fraud, mail fraud, and false statements to a financial institution.  Caroline Walters, vice president and treasurer of the company, pleaded guilty in early February to making a false statement to a financial institution.  She faces a potential sentence of 30 years in prison.

The misrepresentations surrounded two Tax Increment Financing (TIF) notes, which were issued by the city of Chicago in 2002 to finance the redevelopment of Goldblatt’s Department Store in the city’s Uptown neighborhood. TIF notes are conditional grants of taxpayer funds approved by City Council to promote community development.  After the TIF notes issued, JFA pledged one of the notes as collateral for a $15 million loan.  Five years later, without disclosing the previous pledge, JFA pledged the same TIF note as collateral for a revolving line of credit for up to $105 million.

JFA later represented that it would terminate the “double pledge,” though termination was not possible because JFA had already been declared in default. Freed also signed affidavits containing inaccuracies, which allowed JFA and its entities to continue receiving TIF payments, despite the fact that the payments were owed to the bank groups to which they were pledged.

The prosecution demonstrated that Freed provided inaccurate information to the city of Chicago, banks, and business partners. Freed’s false statements included failure to disclose the double pledge, providing cash flow projections containing inaccuracies, falsely projected debt, and failure to disclose unpaid property taxes.  The inaccuracies were relayed in presentations, emails, and documents.  Freed also withdrew funds from a partnership without the consent of his partner, characterizing the amounts as loans.  Freed maintained that mistakes were made but a fraudulent scheme was not intentionally implemented.

The Freed matter highlights the need for full and accurate disclosure in obtaining public and private financing and for compliance measures designed to prevent misrepresentations to financial institutions and government entities.