Hefty cost overruns hidden, Jeffrey Soffer memos show

Paola Iuspa-Abbott

2012-02-13 12:00:00 AM

Jeffrey Soffer is facing new claims that he allegedly sought to hide from lenders hefty cost overruns tied to the

construction of his failed Fontainebleau Las Vegas project.

The information comes from internal memos plaintiff attorneys obtained from Turnberry West Construction, a

general contractor Soffer formed to build the Las Vegas project.

Soffer and Turnberry West are being sued in Clark County (Nevada) District Court by 44 lenders seeking to

recover more than $1.5 billion. The suit also names Fontainebleau Resorts and executives Albert Kotite, Bruce

Weiner, Glenn Schaeffer, James Freeman Devendra Kumar and Howard Karawan.

According to the Feb. 1 proposed amendments to a March 2011 lawsuit, the memos show that Fontainebleau

Resorts used two sets of books to hide the true cost of the project from the lenders. The lenders claim the

developer kept a “bank budget,” in which the construction costs “appeared to be in balance” and kept a “Jeff

Soffer budget,” which reflected the cost overruns.

Through a representative, Soffer declined to comment.

“FBR insisted that TWC Inc. must manipulate the cost and schedule estimates and projections to meet the

guidelines dictated by” FBR executives, according to the amended complaint, citing the memos obtained from

Turnberry West. “The charade began in August 2007 and continued until January 2009. TWC Inc. repeatedly

warned FBR that the farce was ill advised.”

Fontainebleau Resorts could obtain payouts from the $1.85 billion construction loan only by submitting advance

certificates to indicate that the project was on budget.

The lawsuit claims the developer began construction already $100 million over budget. That grew to about $430

million by February 2009. If the lenders had known of the cost overrun, they would have stopped the loan

withdraws, according to the lawsuit.

By late 2008, a few months before work on the project was halted, Turnberry West executive Robert Ambridge

told Soffer and other Fontainebleau Resorts executives he would not sign the contractor’s advance certificate

“because he believed it to be false,” according to the recent filing.

Soffer then personally signed the certificates for November and December 2008 draws, according to the new

documents.

WORSENING FINANCES

The company’s financial situation worsened in December 2008 when another lender, Lehman Brothers Holdings,

stopped funding a $315 million loan to pay for construction of the Fontainebleau Las Vegas’ retail component.

Lehman had filed for Chapter 11 bankruptcy protection in September 2008, helping trigger the global financial

crisis.

In June 2009, Soffer’s Fontainebleau Las Vegas Holdings, controlled by Fontainebleau Resorts, filed for Chapter

11 bankruptcy, which later was converted to Chapter 7 liquidation. The unfinished project was acquired in

February 2010 by Icahn Nevada Gaming Acquisition for $150 million, a fraction of the total debt incurred by Soffer

companies to develop the resort.

The lenders hope the new filing will convince Clark County District Court Judge Mark Denton to amend the yearold

lawsuit to again include Kotite, Schaeffer, Weiner, Kumar and Karawan as defendants, plaintiff attorney Kirk

D. Dillman said in an interview.

Last December, Denton dismissed Kotite, Schaeffer, Weiner, Kumar and Karawan from the initial lawsuit. Denton

denied Soffer and Freeman’s motions to be dismissed from the suit. (To read the whole article visit http://www.dailybusinessreview.com)

Copyright 2012. ALM Media Properties, LLC. All rights reserved.

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