Real estate developer Larry Freed fell on hard times in 2009 during the worst recession in decades, as he was trying to develop the high-profile Block 37 shopping mall in the Loop.
The project’s lead lender sued to foreclose on the mall, saying Freed’s real estate firm had defaulted on a $205 million construction loan. Freed eventually lost control of the shopping center and it was sold.
While he was fighting with the lender in court, his real estate firm’s financial struggles led Freed and a business associate to lie to banks and the city of Chicago to obtain funding, according to federal criminal charges announced Thursday by the U.S. attorney’s office in Chicago.
Freed’s firm, Joseph Freed and Associates, founded by his father in 1965, was not charged in the indictment.
In a statement, Freed, 51, said he was deeply disappointed with the charges and will respond “appropriately” to them.
“And, in this difficult economic climate, we are working hard toward resolving remaining financial issues with our lenders,” Freed said. “We remain committed to doing good work in our city, to resolving our financial issues and to supporting our many loyal employees.”
Freed was indicted on seven counts of bank fraud, one count of mail fraud and five counts of making false statements to banks. Caroline Walters, 53, a vice president and treasurer of Joseph Freed and Associates, faces the same charges. The indictment also seeks the forfeiture of a total of $2.9 million from the defendants.
The two will be arraigned later. Messages to Walters’ attorney were not returned.
Although the Block 37 project is not directly involved in the alleged scheme, the timing of the alleged misconduct coincides with Freed’s financial distress with the shopping mall.
The fraud charges reflect the complicated mix of public and private financing that developers often rely on to get projects off the ground in Chicago. It’s not uncommon for developers to have disputes with their lenders, but in this case, Freed’s issues with Bank of America have taken an unexpected turn. The bank, which was the lead lender in the Block 37 mall, declined to comment on the charges.
Long before Block 37, Freed’s firm proposed redeveloping the former Goldblatt’s department store complex in the Uptown neighborhood on Chicago’s North Side. In 2002, the city agreed to provide $6.7 million in tax increment financing for the project.
With the TIF deal in hand, Joseph Freed and Associates received a $15 million loan from Cole Taylor bank, according to court documents.
Five years later, Freed pledged the same TIF agreement money as part of the collateral for a $150 million line of credit from a bank consortium led by Bank of America, which had acquired LaSalle Bank, court documents said.
Freed and Walters concealed the previous pledge of the Goldblatt’s TIF note to Cole Taylor from the bank consortium, the indictment alleged. In addition, from December 2008 to July 2009, Freed and Walters are accused on four separate occasions of lying to the bank group about the collateral.
They also made false statements to the banks about the property taxes owed on two shopping centers that were also used as collateral to obtain the credit line, court documents said.
Starting in December 2008, Freed also made false statements to the city to obtain nearly $1.75 million in TIF payments, knowing that the bank consortium and Cole Taylor were entitled to that money, the indictment said.
A spokesman for Chicago’s Law Department declined to comment.
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