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By ROGER MARSH
Special to the India Tribune

CHICAGO – Villa Park real estate developer Hasan Merchant filed for bankruptcy protection June 23 in US Bankruptcy Court as 60 lawsuits swarmed around him alleging millions of dollars in unpaid loans, deceitful business practices, and acts of fraud.

Two of those lawsuits paint a particularly harsh portrait of a man who built himself up within Chicago’s Indian community as a master real estate developer and frequent contributor to charitable organizations. Further damage is reflected in an affidavit provided by his chief financial officer.

The 43-year-old Barrington resident, and his company, Polo Builders, LLC, lists more than $10.9 million as its 20 largest unsecured creditors. At a meeting of those creditors July 9, Merchant showed up in a chauffeur-driven car. Bank debt may be as much as $40 million. Private investment debt may be as much as $30 million.

Contacted at his Barrington home recently, Merchant said he could not comment on the bankruptcy or any lawsuits as they were pending in court, and offered to speak out on record once he had resolved his legal issues. Some individual investors were also contacted and would not comment while the case continues in court.

One Illinois couple will now speak through the courts to Merchant, alleging his business misconduct managing millions of their investment dollars took a seedy turn and ignited a stormy controversy among new investors.

Narendra Gupta, MD and Geeta Gupta, MD, brought suit against Merchant, Polo Builders, 22nd Century Partners LLC, and MG International, LLC, September 3, 2003. The suit claims a series of fraudulent business moves and practices by Merchant began shortly after their business relationship kicked off in August 2000.

MG International is a business jointly formed by the Guptas and Merchant with Chicago condo development Polo Towers as their largest property. 22nd Century Partners is a group of 32 investors who placed millions of dollars in Merchant’s hands and who followed the Guptas and brought suit against Merchant October 10, 2003.

The Gupta lawsuit weaves a story claiming misappropriation of their personally invested assets in MG International; and how they believe Merchant’s mishandling of 22nd Century’s funds eventually became their problem. 22nd Century Partners claim deceptive practices from the start with their dealings with Merchant. Both suits claim Merchant moved funds between the two businesses while making false statements about real estate assets and ownership.

Between August 2000 and throughout 2001, the Guptas gave Merchant more than $12 million. They claim that $10 million of those funds was earmarked for the creation of MG International as a vehicle to invest in real estate transactions. The remaining funds were to be used as a loan to Polo Builders with a 30 percent interest rate. During this same period they say that Merchant also accepted approximately $17 million from private investors ($10 million coming from 22nd Century) and placed $15 million of those funds into Polo Builders.

The Guptas claim that Polo Builders held no interest in the real property owned by MG International. 22nd Century claims Merchant:

• Solicited funds for investment in real property, but instead invested the money with Polo, which did not own real property.
• Operated a “Ponzi” scheme – using new money to pay interest and principal to older investors.
• Made statements showing Polo owned real property with equity of $38 million, when in fact the equity in real property was owned by MG International with actual equity of less than $18 million.
• Failed to tell members that the Guptas owned a 50 percent share in MG International and that MG was the owner of the real property.
• By November 2002 stopped payment of interest to members as required in the terms of their notes, but continued soliciting new notes through May 2003.
• Concealed numerous facts with a reckless disregard for the truth in order to obtain members’ money.
• Used Polo as a conduit, artifice, device and fraudulent enterprise to conceal his fraudulent scheme and funnel the money of the members to MG and himself.

22nd Century seeks the return of their $10 million, plus interest and attorney fees.

The Gupta suit apparently seeks to sort out the alleged misrepresentation of how funds were solicited by Merchant from investors, how funds were moved between businesses, and exactly which parties are liable for any investor losses.

The Gupta suit claims:

• An MG International agreement between themselves and Merchant states that acquisition of properties must be voted on by 75 percent of the members – two of the three business parties – but that Merchant failed to obtain the Guptas’ approval while acquiring properties and entering into loan agreements.
• Merchant failed to produce required records of his business actions when requested, nor did he hand over corporate books and records upon request, all of which they state is required under their business agreement.
• Merchant conspired with investors whose notes totaled approximately $10 million to execute new notes, backdated to the original note date, but substituting MG International in place of Polo Builders as the obligor on the notes; and then supporting the new notes with a mortgage on MG property. The holders of the new notes then formed 22nd Century Partners, LLC and recorded their new mortgage against MG Properties.
• The new mortgage was used to stop the Guptas from dissolving MG International and their relationship with Merchant. The plan, they allege, was to remove the $10 million obligation from Polo Builders and shift it to MG International.
• 22nd Century Partners is an entity that was used to disguise certain individuals who loaned money to Polo Builders.
• Merchant sold MG International assets and used the proceeds for personal use. Some money, they allege, was used to pay Merchant’s personal bills or Polo Builder bills.

The Guptas’ attorney, Michael C. Goode, says he cannot comment during the process of litigation.

Inam Khan was chief financial officer for both Polo Builders and MG International beginning in January 2002. Khan provided an affidavit for the Gupta suit October 1, 2003, which offers an inside look at Merchant’s personal business habits. The affidavit in part states:

• The total mortgages (of MG International properties) approximate $43 million.
• Currently offers have been made to sell several projects with offers sufficient to pay off the existing debts and contribute substantial capital to MG.
• Hasan Merchant is the president of MG, and (with one exception, the Winthrop property), has refused to accept any offers to sell any properties, which would avoid foreclosures, and avoid losses to the company and to MG.
• Recently, one property has been sold and closed, the Winthrop property.
• At the closing approximately $600,000 in surplus cash was received.
• Of that sum, substantial amounts, in excess of $300,000, was taken by Hasan Merchant to pay debts not related to MG.
• Hasan Merchant has also executed mortgages for MG property which are improper and created debts to MG which are truly debts of Polo. These mortgages exceed $10 million in debt shifted by Mr. Merchant from his company, Polo, to the Guptas company, MG. This was done without knowledge of the Guptas.
• Hasan Merchant has received earnest money on property sales and has used that money for Polo expenses and not turned that money into an escrow account at either Polo or MG. As a result of this misuse of funds several lawsuits are in process against MG and the Guptas and even myself.
• Polo Builders is in serious financial condition.
• Hasan Merchant has been using money from MG to satisfy obligations to Polo Builders.
• As CFO for both Polo and MG, I can state that the financial transactions undertaken by Hasan Merchant are not only improper, but they are in conflict with one another.
• I have also been advised that Merchant is planning to allow at least one MG property to proceed through foreclosure and then via a private group he will acquire the properties at a substantial discount to their current value and sell the properties for large profits, leaving the Guptas responsible for the deficiencies.
• I believe Mr. Merchant is not acting properly as an office or director of MG, and that his decision making process is in conflict with his position at Polo, and his own financial condition.

Some of the other lawsuits against Merchant or that include Merchant:

Chicago radio station WCKG-FM filed suit in May 2003 stating that they entered into an agreement with Polo Builders for a radio contest in 2002. The contest known both as the Ultimate Funhouse Sweepstakes and PoloGroup Builders Home Giveaway Sweepstakes included terms where the grand prize winner would receive a new home in Chicago valued at $150,000, credit of $125,000 toward a Polo-built home in one of their existing developments, or $75,000 in cash. The radio station provided numerous print, radio, and Internet promotions to Polo during the 10 months proceeding the announcement of a winner. After the winner opted for the cash payment and Polo’s failure to make that payment, WCKG-FM provided the money to the winner in April 2003.

Andrew C. Cory sites breach of contract in his suit seeking $129,962.60 following a business loan with Merchant that was due in March 2003 and was never paid. Merchant’s answer to this suit states that he was misled by Cory. Merchant states that he was told by Cory that if he did not sign the loan documents immediately that he would lose all of his insurance. Merchant states that Cory is in the business of selling insurance and that these were false statements.

Broadway Bank seeks foreclosure on a construction mortgage for a Forest Park, IL property, totaling more than $2.5 million.

Community Bank of Ravenswood, IL seeks foreclosure on a Chicago property with an original debt of more than $2.4 million.

Parkway Bank and Trust Company, Chicago, seeks foreclosure of MG International’s Polo Towers with an original debt of more than $13.4 million.

West Suburban Bank, Lombard, IL, seeks foreclosure on a South Barrington, IL property with an original debt of $880,000.

Five Maryland investors in Polo Builders are demanding return of investments totaling $250,000 from loans made in 2002 and 2003.

Prakash D. and Nina P. Jotwani seek $150,000 as the principal amount of a note Merchant allegedly defaulted on from April 2002.

Gregory and Doreen Gaardbo’s suit seeks a return of an $80,000 deposit from January 2003 for new home construction. The home was never built and the Gaardbo’s are seeking the return of their deposit funds.

Antonio and Deborah Fontela’s September 2003 suit seeks return of their $160,000 deposit for new home construction. The funds were released to Polo Builders in September 2002 and the home was never completed. This suit alleges that Merchant knew at the time the home contract was signed that his company was insolvent, that he knew Polo was having its work liened, that its architects, subcontractors and suppliers were refusing to continue work and that his company was unable to to pay its employees, and that it was so severely in debt that it was incapable of performing and completing the contract.

John Givargis, a contractor who provided replacement windows, glass and mirror installation to Polo Towers, seeks compensation for an unpaid bill amounting to more than $100,000 following work completed in April 2003.

Natvarlal P. Patel, M.D., and Rama N. Patel, seek recovery of more than $300,000 for a lot they purchased from Polo Builders in South Barrington, IL, in February 1999, under an agreement that Polo would buy the property back no later than June 2001. The September 2003 suit also seeks to recover a $125,000 loan to Polo that was in default.

Polo Builders was formed by Merchant in 1978. He had been known previously in Illinois and the Chicago area as Merchant Construction.