Customers, including Roderick Bishop and Kristy Cruz of Benton Park West, say Michael Litz's bank took them for a ride.
Clayton real-estate developer Michael Litz, 63, has been sentenced to three years in prison and ordered to pay $5 million in restitution after pleading guilty to playing a key role in a bank fraud scheme.
Litz, the target of a 2011 Riverfront Times cover story
, was indicted in May 2016 on charges of bank fraud after arranging what federal prosecutors call "insider" and "straw party loans" from Excel Bank of Sedalia, Missouri, to bail out his failing businesses.
The bank later failed, costing taxpayers $4 million in TARP funds.
"There are ways to remedy troubled businesses without committing fraud," Special Agent in Charge Richard Quinn of the FBI St. Louis Division said in a prepared statement. "Instead, Michael Litz chose greed and indirectly victimized taxpayers who bailed out his bad business decisions. Now he will be held accountable for his criminal behavior."
Litz was a principal in Bellington Realty and 18 Investments, which, as the RFT's Nicholas Phillips reported in 2011
, specialized in buying mid-range properties in bulk, then reselling them to people who didn't qualify for bank loans.
The business plan depended on real estate prices continuing to soar — and for years, they did. But when the housing market crashed in 2008, some of the buyers that relied on Litz's companies found themselves on the short end of the stick. They say they found their homes in foreclosure — even though they'd been faithfully making payments to Bellington or 18 Investments.
Unbeknownst to them, Litz had sold them their houses using "wraparound mortgages," meaning his companies still owed money on the properties; the new buyers' mortgages merely "wrapped around" the originals. When Litz's companies failed to make good on their obligations, the bank seized the homes.
As litigation around those tactics (and other allegations) filled court dockets, prosecutors say, Litz recruited a close friend to sign on to a $3.3 million loan at Excel Bank to pay off some of his company's debts.
"The friend was assured that he would not be held liable on the note and that the loan would be taken care of," the U.S. Attorney's Office said in a statement today. "According to court papers, that individual was simply acting as a friend to help Litz. The loan proceeds were used to pay off Litz’s and [banker Shaun] Hayes’s McKnight Man debt at Centrue Bank as well as the Eighteen Investments debt at that bank. Since Hayes was a principal at Excel Bank, the use of the loan funds to pay off the Hayes-Litz liability at Centrue Bank constituted unlawful self-dealing. Litz admitted that he participated in that transaction and directly benefitted from it." It's that transaction that finally led to his guilty plea earlier this year — and a comeuppance some former associates had waited upon for years.
Indeed, as the RFT
reported in 2011, even as numerous banks sued Litz's companies and home buyers met with the FBI to allege that he'd screwed them out of their residences, the developer continued to live well:
For all the bad blood stirred up in the collapse of the Bellington empire, what seems to rankle both wealthy bankers and not-so-wealthy homeowners is that Michael Litz is not noticeably suffering.
He's still a member of the exclusive Westwood Country Club — although, according to members, he's somewhat avoided these days. Litz still sits on the board of Gateway to Hope, a group that provides breast-cancer treatment to low-income patients.
[Sohaila] Danesh, his wife, also apparently remains active in the city's social circles: She's currently on the board of Legal Advocates for Abused Women and just last year won "Ms. Best Dressed" at the Contemporary Art Museum's Dada Ball.
The Litzes have even managed to hang onto their Ladue mansion...
Federal prosecutors allege that Litz and Hayes set up other straw party loans at Excel Bank to cover millions of dollars in other delinquent loans of Eighteen Investments.
"The restitution amount ordered by the court consisted largely of losses incurred by Excel Bank on the straw party loans with most of the restitution being owed to Federal Deposit Insurance Corporation," the U.S. Attorney's Office said in a statement today.
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