(CN) - The founder of a biomass energy firm claims in court that he was lured into a fraudulent lending scheme and lost $10 million in business as result.
Synergy Projects sued three people and three businesses in Cedar Rapids, Iowa, Federal Court. Named as defendants are Edward R. Green, Lance M. Hale, Lance M. Hale and Associates, Wisdom International Investment Group Ltd., Northwest Premier Inc., and Lucas Denn.
Synergy president David Wild says in the lawsuit that he founded his company to harvest and sell hardwood and lumber in China, Western Europe and North America, and then use the byproducts - essentially sawdust and leftover odds and ends - to produce cellulosic ethanol, also for sale.
With the onset of the global economic crisis in September 2008, Wild says, he agreed to buy land, fixed assets and inventory from several wood-products companies at distressed prices. But he needed capital.
So, Wild says, consulted defendant Ed Green, of the state Georgia, a business associate, who also was trying to raise capital, for resort projects in Central America and elsewhere.
Wild claims Green told him Wild could raise money through a "private placement investment platform" with defendant Wisdom International Investment Group, of Hong Kong.
Private placements are a vehicle for raising capital through sale of securities in nonpublic offerings that are exempt from registration under federal securities laws. They are popular among small and start-up companies, but can be risky and subject to fraud and sales practice abuses, according to the Financial Industry Regulatory Authority.
Wild claims that sometime during 2009 or 2010, Green told him about a program that would yield capital by trading funds generated by a bank-issued line of credit secured by a certificate of deposit issued by a second bank.
In the lingo of the financial world, Wisdom International was to serve as the "platform" of the investment scheme, leasing the CD, securing bank and trading firm participation, lining up investors and establishing safeguards to ensure that the instrument was legitimate.
In theory, as proceeds from the invested money came in, they would be distributed to participants in the plan.
"The program offered something for everyone," Wild says in the 25-page lawsuit. "Participants would receive project capital; the original CD owner would receive a greater return from lease payments than was generated by the CD itself; the banks, trading company and Wisdom would receive fees."
Before accepting Synergy into the program, Wisdom International asked Wild for information about himself and his company and his bank. It also required that he demonstrate up front, that he was willing and able to pay the program expenses, according to the complaint.
Wild says he provided all of the requested information, whereupon defendant Lance Hale, a Virginia attorney, urged him to invest in the platform immediately as his contact was about to return to Hong Kong.
"On July 13, 2010, Synergy delivered $100,000 to Ed Green in exchange for a written promissory note from Mr. Green," the complaint states. "This money, plus an additional $50,000 paid by Ed Green was to be placed in escrow with Defendant Northwest [Premier, Inc.] to cover certain program fees.
"On July 15, 2010, plaintiff and Ed Green entered into a written agreement to obtain a 0.5 percent interest in a trading platform and divide the proceeds equally. ...
"As finally developed, a five hundred million euro (€ 500,000,000) bank letter of guaranty (BG) was to be pledged by ABN AMRO Bank, N.V., a Dutch bank with its principal place of business in the Netherlands. The BG was to be delivered to ChinaVest, a Hong Kong bank that would verify its authenticity and issue a line of credit. Funds from the line of credit were to be traded by the trading desk of an investment bank. If all went as planned, Synergy would receive approximately $50,000,000 in distributions plus renewals, extensions or rollovers thereof."
Satisfied the investment was going as planned, Wild says, Synergy invested another $130,000 in the scheme. He claims that in September 2010 Green requested the release of 180,000 euros and another 500,000 euros.
"The funds were to be delivered from Wisdom's account with EFG Bank in Hong Kong to an account held by Pedro Pte. Ltd with OCBC Bank Singapore," Wild says in the lawsuit. "That bank was to issue $180,000 and $500,000 [sic] to Paymaster, John Stasney's account with JP Morgan Chase in the United States. The money was to then be wired to Synergy's account at US Bank in Cedar Rapids, Iowa. The gain from exchanging euros for dollars was to be used for transaction-related fees."
But "Synergy never received the money," Wild says. "What followed was a series of representations and excuses made by Ed Green to Mr. Wild. In those conversations, faxes and emails, Mr. Green repeatedly quoted or summarized statements made by Lucas Denn or other representatives of Wisdom."
In short, the statements blamed the delay in transferring the funds on U.S. and Asian securities and monetary regulators. But the result was that no money ever went to Synergy, Wild says.
In January 2012, Wild says, he spoke directly to defendant Lucas Denn, a director of Wisdom International, who told him there had been a problem with the original instrument from ABN AMRO and that ChinaVest never created the line of credit.
Wild said he had seen and, in fact, saved a computer screen shot of a web page that purported to prove the instrument's existence and authenticity.
He claims Denn admitted the instrument had been listed on the website, but said that the listing had later been taken down.
"If it was true that the instrument had been taken down from the screen and ChinaVest had never issued the line of credit, all of the representations made by Mr. Green and Mr. Denn to the effect that the instrument had been delivered, that trading had begun, that monetary regulators were the only thing standing in the way of release of funds, that these regulatory obstacles to release of the funds had been overcome, and the repeated promises and assurances that payment would be forthcoming were false," Wild says in the complaint.
"Moreover, Mr. Denn, and plaintiff believes Mr. Hale as well, would have been among the first to know when the instrument had been taken off the screen and that ChinaVest was refusing to issue the line of credit. They had a duty to timely disclose this material fact to plaintiff but they concealed these facts until Mr. Wild asked Mr. Denn directly in January 2013."
Wild claims that as a result of this boondoggle, he was unable to pursue alternative financing for Synergy's projects.
"As a result of plaintiff's reliance on the false statements and representations of Mr. Green, Lucas Denn and Wisdom, and the concealment of the truth by Mr. Green, Mr. Denn and Mr. Hale, Synergy lost the projects for which it sought capital through Wisdom and has lost the profits from those projects," Wild says.
"Synergy has also incurred substantial out of pocket expenses and other economic losses, has lost future business opportunities and profits, and has been damaged in its reputation in the market which has also resulted in economic loss that will continue into the future."
Wild, through Synergy, seeks $10 million in punitive and compensatory damages on multiple claims of breach of contract, fraudulent misrepresentation and fraudulent concealment.
Synergy is represented by Mark Liabo of Cedar Rapids.