SOURCE: US Capital Holdings

June 19, 2014 12:00 ET

321 North Owner Claims That $50 Million Loan Hid Fraud Scheme to Seize Control of Project

Company Says in Lawsuit That Lender Hid True Source of Funds and Exorbitant Loan Terms With Goal of Taking Over Mixed-Use Project in Plantation

PLANTATION, FL --(Marketwired - June 19, 2014) - A lender to 321 North concocted an onerous debt scheme that was actually an underhanded attempt to wrest 321 North from Mr. Wei Chen, a part-owner and corporate manager, according to a lawsuit filed June 16 in state court.

On behalf of the project's owner, Mapuche LLC, Mr. Chen charges that two Chinese businessmen and companies in China and Singapore acted in secret to put Mapuche so far in debt that they could take the former Fashion Mall through foreclosure.

According to the lawsuit, "Defendants worked together to divest Mapuche of its interest in the Fashion Mall through an oppressive and fraudulent loan contract which they knew Mapuche would never be able to repay."

This legal action follows a lawsuit that Mr. Chen filed in May against Zhen Zeng Du and Tangsgan Ganglu Iron & Steel Co. Ltd. charging that Mr. Du used false promises and later false accusations to acquire a majority interest in Mapuche and later tried to take control of 321 North. A lawsuit brought by Mr. Du and Ganglu against Mr. Chen was dismissed on May 20. Mr. Chen prevailed on a motion to dismiss due to lack of federal court jurisdiction over the case. 

Mr. Chen first learned of the loan two years after it was executed in Zunhua, China from an attachment to that lawsuit. 

Mr. Chen formed US Capital Holdings in 2004 to purchase the former Fashion Mall. The goal was to redevelop the shuttered property as a live, work, dine, shop, play, stay destination that integrates retail, high-end dining and entertainment offerings, high-quality offices, and residences with an existing, on-site hotel.

US Capital Holdings had filed for protection under bankruptcy laws in 2012. Mr. Du promised in March of that year that Ganglu, which owns 80 percent of Mapuche, would loan the project nearly $50 million, according to the lawsuit.

During the discussions, Mr. Du hid from Mr. Chen the fact that two months earlier, he had arranged a $50 million loan from a Singapore company, Bo Rui Investment, according to the latest lawsuit. A record from the Singapore government website indicated that the Bo Rui Investment was registered on May 25, 2012, four months after the loan contract was signed. Xianquan Meng signed for that company; as deputy chairman of the board of directors of Ganglu, he has close ties to Mr. Du.

Mr. Du signed on behalf of Mapuche without telling Mr. Chen, despite the fact that Mr. Chen owns the other 20 percent of the company, according to the lawsuit. As collateral, Mr. Du gave Mr. Meng's company rights to take control of the company and 321 North.

The one-year loan carried an 18 percent interest rate that jumped to 25 percent in return for a one-year extension. The rate climbed to 30 percent if the loan was extended again beyond two years. If Mapuche defaulted, the lender could sue in the People's Court in China.

In the two years that have passed, Bo Rui has never contacted Mapuche or sought repayment, according to the lawsuit. Mapuche further alleges that while the funds appeared to come from Bo Rui, they in fact were supplied by Ganglu as part of an effort by Mr. Du to gain control of 321 North.

As manager, only Mr. Chen is authorized to enter loans on behalf of Mapuche, according to the company's corporate document. On behalf of the company, he is suing Mr. Du, Mr. Meng, Ganglu and Bo Rui. He is asking the court to void the loan agreement and award damages against the defendants.

ABOUT U.S. CAPITAL HOLDINGS

Plantation-based U.S. Capital Holdings is part of a group of related companies (the "U.S. Capital Holdings Group or USCHG") that was initially formed in 2004 as a vehicle for investing funds originating in China into U.S.-based real estate. The company's business model is to invest in undervalued assets that can be improved through changes in strategy, management and repositioning.

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