Real estate investors ask: Where did all the money go?

Richmond businessman Allan Mullian received interest payments every month for about 10 years from his real estate investments.

He invested in Richmond-area properties that Donald C. Lacey was to fix up and rent or flip at a profit.

The checks stopped coming in November and he was told there was no more money.

Mullian, 77, said he and his family had $2 million invested in as many as 100 properties in the Richmond area. "Losing that kind of money at my age is rough."

Mullian and at least a dozen investors have sued, claiming they were duped in an elaborate plan some have called a Ponzi scheme involving Richmond-area properties leveraged to the hilt.

Many properties were not renovated. Millions of dollars were supposed to be used to fix them up. One investor said only two of 47 properties he put money into were renovated.

No charges have been filed, but the allegations are under investigation. Mullian and other investors say FBI agents interviewed them for hours. The FBI declined comment.

The question they're all trying to answer is: Where did all the money go?

. . .

Investors allege that Lacey, a former Henrico County police officer who ran multiple limited liability companies that owned the fixer-uppers, took the money for his own personal use, according to court records in Richmond and Henrico.

They claim that Lacey acted in collusion with David A. Silver, president of Old Dominion Financial Service Inc., a Henrico-based company that arranged and serviced loans from investors, court records show.

Silver got involved with Lacey about 10 years ago, putting investor money into deeds of trust attached to properties owned by Lacey's companies.

Old Dominion was established in 1977 by Silver's father, who initially ran a remodeling company. It ceased operation a couple of months ago, said Jeffrey Geiger of Sands Anderson Marks & Miller, Silver's attorney.

Silver was the mortgage broker, pooling investor money and putting it into promissory notes. Investor money flowed through Old Dominion to Lacey and his companies, which owned the properties.

Silver and his wife, Pamela, invested their life savings in the companies owned by Lacey, according to Geiger.

Lacey also solicited money through Capital Funding and Consulting LLC, an investment company that he controlled. Capital Funding is one of 33 limited liability companies owned and managed by Lacey. LLCs are business partnerships that protect individual partners from the liabilities of other partners.

Investor money was supposed to be used to buy and renovate the fixer-uppers. In effect, the investors were the lenders on the properties, much like a bank is on a typical purchase or renovation.

In return, investors were promised high returns of 10 percent to 12 percent a year on promissory notes secured by deeds of trust.

Old Dominion created accounts that paid a fixed rate of interest for a short term. The company was supposed to return all money at the end of the term, court records show.

Loan terms ranged from one to 10 years. The money, according to city court records, went into accounts owned and controlled by Lacey.

Lacey and his wife personally guaranteed the promissory notes, according to court records and company materials.

Tamara Lacey, who filed for personal bankruptcy liquidation last month, claimed assets of $4.2 million and liabilities of $47.2 million. According to the bankruptcy petition, the couple is in debt for at least $25.8 million mostly in promissory notes and guarantees of business obligations.

They owe Old Dominion $17.3 million, secured by a second mortgage on a house valued at $390,000, bankruptcy court records show.

Donald Lacey could not be reached for comment despite repeated attempts. Tamara Lacey referred questions to her husband's attorneys, Steven Benjamin of Benjamin & DesPortes in Richmond or John Goots of Coleman Goots & Associates in Mechanicsville.

Benjamin said last month that Lacey's business was hit hard by the economic collapse and that he was making a good-faith effort to repay the money.

Benjamin later said he was representing Lacey only on the federal investigation and could not speak for Lacey and his business operations.

"Ultimately, as part of our cooperation with the government investigation, I want to understand where the money went, how it was used and what remains for appropriate repayment," Benjamin said. "We may find that mediation is necessary to resolve competing claims, civil judgments and the effects of a restraining order."

Goots said he represented Lacey for only three recent residential sales and said he knows nothing about the allegations, lawsuits or Lacey's other business dealings.

"There is nothing unusual in the things I have seen so far that have come across my desk," he said.

"It's a terrible real estate market," Goots said. "Many people who bought houses in the last two or three years can't get what they paid for the houses. But I can't even say that is Don's problem."

. . .

Mullian said he has lost many nights of sleep over his investments, which he fears he may never recover.

"At least I have some money to fall back on. Others have lost everything."

Mullian, president of Regal Home Improvement Co., a roofing, siding and carpentry contractor in Richmond, had let Old Dominion handle his money. He didn't follow the money because the investment had worked for years.

When he learned last fall that Old Dominion was struggling financially and couldn't make interest payments, Mullian began investigating.

He discovered that $140,000 of his investments were secured by a dilapidated house at 1320 N. 22nd St. in Richmond's East End. Other investor money was attached to the house as well, which is assessed by the city at $76,500.

The outside is clad in vinyl siding, making it appear at first glance in semi-decent shape. The house is boarded up and the yard is overgrown.

Mullian hired Sam Stein, a contractor, to inspect the house. Stein unboarded the property for an inspection after Mullian received written permission from Lacey.

A Times-Dispatch reporter and videographer were present during the inspection.

Inside, there were gaping holes in the ceilings and floors. Mold was growing on walls. The 940-square-foot house had no toilet, sinks, plumbing or electrical systems. A pile of mismatched lumber was lying inside the front door.

No interior work -- other than perhaps minor demolition -- had been done. Viking Investment Properties, one of Lacey's companies, bought the house in 2005 for $47,000.

Stein said it would take at least $40,000 to renovate the property, but a renovation would not be worth it, considering more than $200,000 worth of liens are attached to the house, he said.

Stein and other contractors this year inspected 20 properties in which Mullian has money. Stein said 18 of the 20 properties should be bulldozed, not renovated.

. . .

Investors -- including Mullian -- have filed civil suits in Richmond Circuit Court against Lacey and his companies, which include Viking Investment Properties, Capital Funding and Consulting, Clayton Investment Group, Maximus, Premier Investment Properties, MJD Properties and Tower Building Properties.

Four investors have filed complaints against Lacey as well as Silver and his company, Old Dominion, in Henrico Circuit Court. These suits, which were consolidated into one, allege breach of promissory notes and guaranty agreements, fraud and conspiracy.

The complaint refers to "an investment scheme" devised by Silver and run through Old Dominion. It alleges that funds from one investment account were used to pay interest due on other investment accounts.

"The investments were soon to collapse, as all Ponzi schemes do," one lawsuit stated.

The Silvers, in response to the lawsuit, denied the allegations and said it is easy in this environment to toss around incendiary terms such as Ponzi scheme.

Investors say some houses were renovated, but many were not. Deeds of trust are under water, meaning equity in the houses is insufficient to clear all the liens.

"Visual inspection of the properties reveals that in many cases, little or no rehabilitation work has occurred whatsoever," according to a complaint filed in Henrico Continued on Page A11 Continued From Page A10 Circuit Court in February by Michael Sellman, an investor from New York.

Sellman's lawsuit claims that sales of supposedly rehabilitated properties were simply transferred between entities owned and controlled by Lacey, making it difficult to trace the money and giving the appearance of a sale and successful rehabilitation.

He said, in his suit, that he had no idea that his investment money would go only to entities owned and controlled by Lacey, nor did Old Dominion disclose the potential risk that all the borrower entities were related.

"Old Dominion simply gave the borrower entity all of the money up-front. No procedures were in place to ensure any work was done on any of the properties," according to the Sellman lawsuit.

In a typical construction loan, in which the lender is a financial institution, the borrower would get funding at various stages of the work process and only after certification that work was completed.

A suit filed against Lacey in Richmond Circuit Court alleges breach of contract and fraud. A judge awarded $663,593 to Richmond investors Patrick and Sherrie Becker, after Lacey failed to respond to their complaint.

The Beckers invested $200,000 in Capital Funding and Consulting. Trying to collect on the judgment, they were granted a restraining order in Richmond Circuit Court in April to prevent the sale of Lacey's assets.

In Capital Funding alone, more than 75 individuals, families and companies invested more than $9 million, city court records show.

The Beckers claim that Lacey assured them that the loans would never exceed 80 percent of the value of the property, according to city court records. Promotional materials made the same claim.

The couple later learned that loans on one property in which they had money exceeded 500 percent of the assessed value, according to the suit.

That property, assessed at $235,800, had loans of more than $1.2 million attached to it, court records show. Another property, assessed at $128,800, had loans of $726,000.

At least seven other default judgments have been obtained this year against Lacey's businesses, according to Mrs. Lacey's bankruptcy petition.

"Mr. Lacey and his wife have not responded to various litigations," said Geiger, Silver's attorney. "They are the only ones who can give you the answers."

. . .

Joel Fine, an investor from near Asheville, N.C., said he had invested through Old Dominion for 28 years. His parents, who knew Silver's parents, had invested for 31 years.

Payments for his investments arrived on time every month.

"They were never late," he said. But the payments stopped in November. "It was the shock of my life."

Fine, 62, had retired and was counting on the checks for his retirement. "I am back to looking for a job."

He said he has $750,000 invested in Lacey's companies through Old Dominion. He persuaded friends and family to invest in it as well.

Fine and another investor came to Richmond in December to see the properties in which they had invested. He said they were surprised to learn that their investments were not all first deeds of trust.

Some were second deeds of trust, meaning they would be second in line to receive money from their investments if there is enough to distribute.

"We cried when we saw what we had invested in. Some houses were wrapped in cheap vinyl and boarded up. Two were empty lots. The vast majority were way over leveraged."

One lot, at 316 Preston St., near Gilpin Court, a housing project in East Richmond, is assessed by the city for $5,500. It has first and second deeds of trust valued at $148,000.

"OK, maybe they spent $10,000 or $20,000 taking down a ramshackle house on the lot," he said. "But where the heck is the rest of the money?"

Contact Carol Hazard at (804) 775-8023 or .