Commercial real estate investor Raheel Bhai’s twisting legal saga finally came to an end in a federal courtroom in Texas recently when he pleaded guilty to one count of wire fraud for allegedly securing a $149 million loan from lender Benefit Street Partners by falsifying or forging dozens of documents, Bis Now reported.
At his hearing, Bhai admitted to inflating the length and amount of lease terms his company IBF had with 24 Walgreens across 10 states to secure the loan, which Bhai claimed was to be used to refinance the properties as well as create a new REIT.
As part of the loan agreement, Bhai created an account in which rent from all of the Walgreens leases would be deposited monthly.
Bhai prepaid $2.3 million, three months of rent, into the account, telling Benefit Street Partners that it was so he could iron out some difficulties he was having with Walgreens concerning rent payments, according to the outlet. But the prepayment was really to cover up how much actual rent Walgreens was paying, which was less than what he told the lender.
Instead of creating a REIT, Bhai funneled about $21 million to family members through a front company.
When Benefit Street Partners discovered the scheme, Bhai and several family members and business associates fled the country, Bis Now reported. It was later revealed that $5 million of the loan proceeds was allegedly converted to cryptocurrency to help Bhai flee, according to Bis Now, citing a lawsuit against Bhai’s alleged co-conspirator, Di Hao Zhang.
An IBF employee said she found at the office and at Bhai’s private residence bags of shredded documents related to the scheme.
Bhai ultimately returned to the U.S. to face criminal charges. He faces a prison sentence of up to 20 years and fine of up to $250,000, the outlet reported.
In addition to producing a couple of criminal indictments and multiple lawsuits, the case represents a cautionary tale for the commercial real estate industry, which had huge infusions of cash from lenders eager to dole out loans and possibly overlooking fraud in the process.
“The whole point of fraud is that there’s some sort of concealment,” attorney Bonnie Hochman Rothell, of Morris, Manning & Martin, told Bis Now. “With a clever fraudster, it might not be so obvious. Despite really diligent underwriting, a lot of lenders will miss something because they, too, have been defrauded.”
Benefit Street Partners, for its part, said it properly performed its underwriting, including its due diligence.
— Ted Glanzer