The sentencing of a Maryland-based real estate broker who pleaded guilty to wire fraud and conspiracy has renewed the resolve of one of the victims to continue a civil suit filed against two Philadelphia lawyers who allegedly assisted with the sham transactions.
Robert Koger, former head of Molinaro Koger, was sentenced Tuesday to 11 years in prison for charges of wire fraud and conspiracy to commit wire fraud.
He entered a guilty plea in January to Judge Liam O’Grady of the U.S. District Court for the Eastern District of Virginia, which covered three sham transactions against Host Hotels & Resorts, Inc., as well as a series of other criminal acts. In July 2012, the Montgomery County Circuit Court awarded the company $22,769,700 in Host’s civil litigation against Molinaro Koger, Koger and his front companies based on claims of fraud and breach of fiduciary duty involving these three transactions.
On July 17, 2013, Host filed a lawsuit against Fox Rothschild in the Circuit Court of Maryland for Montgomery County. Host’s lawsuit alleges that two Fox partners based in Philadelphia, Mark Morris and Michael Kornacki, worked in concert with Koger and his company at the time, Molinaro Koger, to perpetrate a scheme against Host that involved three sham transactions – the same three transactions for which Koger admitted guilt in his plea deal with the U.S. government.
“Koger’s sentencing ensures that he can no longer abuse his trusted position as a broker to defraud his clients. Host is grateful for the government’s investigation and efforts,” said Host’s General Counsel, Elizabeth Abdoo. “Host will continue to pursue its claims against Koger’s law firm, Fox Rothschild. Our amended complaint filed in Montgomery County Circuit Court alleges that Fox Rothschild engaged in dozens of instances of misrepresentation and affirmative fraudulent concealment over a two-year period – and Robert Koger and Molinaro Koger could not have successfully completed the fraudulent schemes against Host but for the active and willful support of Fox.”
The sham transactions involved the sale of the Dulles Marriott Suites and Stamford Sheraton hotels, the sale of The Ritz-Carlton, Dearborn hotel, and Host’s purchase of notes secured by mortgages on a pool of European hotels.
On May 20, 2014, the Circuit Court denied in full a motion to dismiss filed by Fox, allowing Host’s lawsuit to proceed to the discovery phase.
In issuing his ruling, Judge Ronald B. Rubin stated, “There are ample facts pled from which a jury could find that Fox substantially assisted Koger and others with committing underlying torts...an attorney is not insulated or immunized from civil liability if he or she crosses the line.”
The federal investigation of Koger’s schemes also resulted in three of his co-conspirators pleading guilty: former Molinaro Koger COO Jonathan Propp and Koger business associate Todd Lawyer entered guilty pleas for conspiracy to commit wire fraud, and former Molinaro Koger CIO Richard Harris, III pled guilty to aggravated identity theft.
No criminal charges have been brought against Morris or Kornacki.
According to court records, the charges against Koger arose from three separate schemes, which resulted in losses exceeding $55 million.
The first scheme involved Koger’s illegal flipping of hotels and promissory notes securing hotels in which Host Hotels and Resorts, L.P. and others were victims. In the second fraud, Koger executed a Ponzi scheme to steal and launder funds received from prospective buyers of hotels that were to be held in escrow while Koger negotiated with the hotel’s owners regarding the terms of the sale. In the third scheme, Koger defrauded a Tampa, Fla.-based physician and businessman in connection with the latter’s ownership of a hotel in Pittsburgh.
In the first scheme, after Koger was hired by Host as a broker to sell two of its hotels, Koger located legitimate buyers for the properties at a fair market price. Rather than selling the hotels directly to the legitimate buyers, however, Koger recruited straw buyers controlled by him to whom he arranged the sale of the hotels by Host for considerably less than the legitimate buyers had agreed.
The straw buyers then immediately turned around and sold the hotels to the legitimate buyers at the higher price previously arranged by Koger. Koger pocketed the difference between the legitimate purchase price and the straw buyer’s price, plus the commissions that Host paid Koger for arranging the “front end” sales with the straw buyers.
In a similar manner, Koger defrauded Host by having a straw buyer purchase promissory notes securing European hotel properties in which Host was interested. The straw buyer then resold the notes to Host for considerably more than it paid for them. In total, Koger defrauded Host of more than $22 million.
In the second fraud scheme, Koger received deposits from prospective buyers of hotels that were to be held in escrow while Koger negotiated with the hotel’s owners regarding the terms of the sale. Contrary to his representations to the prospective buyers, Koger was not actually holding their funds in escrow. Instead, he used their funds to pay for personal and business expenses, including to repay prospective buyers whose funds previously were purportedly held in escrow by Koger.
Finally, Koger defrauded “K.P.,” a Tampa-based investor who owned the Wyndham Grand Hotel in Pittsburgh. A management firm that held a promissory note secured by the hotel decided to sell the note, and K.P. submitted an offer to buy the note for less than its face value.
In what is described in court records as a “walk-away fraud,” Koger used an alias (“Rick Thompson”) to contact K.P. about his bid for the hotel’s promissory note. As part of this process, Koger (acting as “Rick Thompson”) falsely claimed to K.P. that “Thompson” had submitted a higher bid for the note than K.P.’s bid, but “Thompson” then offered to withdraw his bid if K.P. paid “Thompson” $2.5 million to walk away from his purportedly higher bid.
After K.P. paid off “Thompson,” Koger used a different alias (“John Stern”) to contact K.P. again about the property. In what is described in court records as a “break-up fraud,” “Stern” falsely offered to buy the hotel from K.P., but then threatened to sue K.P. over an alleged breach of contract related to the sale, unless K.P. agreed to pay “Stern” $15 million.