The federal government wants to take nearly $4 million from Northstar Commercial Partners — a move that lawyers for the Denver-based real estate firm say would hurt 39 “innocent” individual investors who were just about to get paid back.
But the government claims it’s the one trying to return the funds, and that Northstar CEO Brian Watson “has created the very problem he claims he is trying to cure.”
It’s the latest side saga in Watson’s 18-month battle with the FBI and Amazon, which his attorneys recently said have “impoverished” Northstar to the point it has lost its office space and let go of nearly all of its employees.
Throughout the fight, the firm has been jettisoning its holdings, selling properties from Lone Tree to Phoenix. And court records show that Watson sold his private plane in June at a loss.
$4M has been frozen for more than a year
The funds — $3.65 million in one Citywide Bank account, and $196,634 in a second — were originally seized by the government on May 8, 2020.
That’s one month after Watson said the FBI had served a warrant at his Cherry Hills Village mansion, and asked questions regarding the company’s development of northern Virginia data centers for Amazon. And it’s about two weeks after Amazon sued Northstar, alleging the company bribed two Amazon real estate employees in exchange for being awarded the development deals.
Watson has denied any wrongdoing, and one of his attorneys, Stan Garnett of Brownstein Hyatt Farber Schreck, reiterated that in a Monday interview.
The money sat in limbo for a year. Then, this May, the government filed a forfeiture lawsuit in federal court in Virginia, asking a judge to declare the funds the property of Uncle Sam.
In the lawsuit, the government said the FBI continues to investigate what it called a “fraudulent kickback scheme,” and that the funds should be forfeited because they were related to that activity.
Both parties appeared to agree that the funds were transferred to Northstar’s accounts by IPI Partners, the Chicago-based firm that was providing funding for Northstar’s development deals with Amazon. (Northstar sued IPI last December.)
But in fighting back, Northstar said the money was going to “innocent third parties.”
In a late July filing, attorneys representing the firm said that when Northstar first began pursuing Amazon development deals, it “enlisted 39 private investors, and one large institutional investor who subsequently bought out the 39 private investors.”
“Their investment contributions are reflected by the totals within the Seized Funds,” the filing reads. “In other words, the funds seized by the government over two years after the investment opportunity arose were monies earmarked for a partial return of the original equity invested by innocent third parties, as opposed to reflecting a return or profit on their initial investments.”
In a subsequent motion earlier, the government agreed that “the information presently available” indicates the 39 investors were unaware of the alleged criminal activity. But it said forfeiture is the best way for them to be paid back.
“Watson has created the very problem he claims he is trying to cure — getting the defendant property returned to the 39 investors whom he drew into a capital raise in furtherance of his honest services wire fraud scheme,” the Aug. 11 motion reads. “Indeed, by virtue of this claim, Watson shows that a forfeiture proceeding is necessary to quiet title to these funds, so that the 39 investors may have an opportunity to petition for their remission or otherwise seek their return without this competing corporate claim ostensibly from Watson.”
The money remains in limbo. Last week, the government requested and was granted a stay in the case, saying it sought the pause because civil discovery in the case would “adversely affect the ability of the government to conduct the related criminal investigation.”
Company down to three employees
Attorneys representing Northstar-related entities painted a grim picture of the firm’s finances as they fought against the proposed forfeiture.
In a July 27 filing, they wrote that Northstar “was quite successful” until the accusations levied by the FBI and Amazon, which they said are “working hand in hand.”
The company’s headcount is now a fraction of what it once was, they said.
“Northstar, which once employed over 40 full-time employees, has been impoverished to the point of eviction from its office location, and approximately 37 of the employees have been let go,” the attorneys wrote. “The same Government will seek remission petitions and stays to avoid exposing its evidentiary shortfalls, while Watson slowly succumbs to the continuous grind of financial warfare, having less resources to defend himself against the government, against Amazon, and against its prior majority equity investor in the data center venture, IPI.”
Northstar’s office was at 1999 Broadway in Denver. In March 2018, Watson told BusinessDen the firm occupied 12,500 square feet on the building’s 35th floor.
Watson said in a court filing last year that he was personally worth $61.45 million at the end of May 2020, and that he owned 100 percent of Northstar. Like most real estate companies, the Northstar-related entities that purchase individual properties are typically made up of multiple investors.
Garnett, one of Watson’s attorneys, told BusinessDen Monday that there’s been no case management order in the Amazon lawsuit, meaning Watson has been unable to conduct discovery to aid in his defense.
“There’s all kinds of problems with Amazon’s case,” Garnett said. He reiterated that Amazon did not back out of the deals in Virginia, and operates in the buildings that were developed.
Multiple parties besides Northstar that Amazon named as defendants in the lawsuit have not even responded in court, Garnett said, but the company doesn’t seem to be concerned about that.
“All Amazon seems to be interested in is conducting discovery into Brian Watson and his financial situation,” Garnett said.
Real estate sold in Broomfield, Aurora, Lone Tree
Northstar and Watson have been in a selling mode lately.
Gone is the private plane.
According to documents filed in court last week, Watson sold an airplane on June 24 for $1.05 million. That appears to be the 2001 Cessna 560XL that Amazon had previously noted was registered to a Northstar entity.
Watson estimated in court documents last year that the plane was worth $2 million, and said he still owed $1.5 million on it.
A judge in the Amazon lawsuit case ordered Watson to deposit $21.25 million in an escrow account in June 2020, but he has not done so. An attorney for Watson said earlier this month in an email made public that he was “unable” to put up the money, which prompted an Amazon attorney to question why he couldn’t at least make a partial deposit.
“Is it your clients’ position that they are and have been unable to post even a penny of the required security from June 5 through today?” the Gibson Dunn attorney wrote on Aug. 3.
Northstar has also been unloading some of its real estate.
In December, a Northstar-related entity sold 800 Hoyt St. in Broomfield for $24.08 million, according to a document submitted to the court last week. The company purchased a vacant 120,000-square-foot industrial building on 20 acres there in 2015, according to a news release at the time, and redeveloped the site with two new industrial structures.
In March, Northstar sold the retail building at 10180 E. Colfax Ave. in Aurora for $1.4 million, according to the filing. In April, Northstar and partners sold the Pinnacle at RidgeGate medical office building they developed at 10290 RidgeGate Circle in Lone Tree for $37.68 million, records show. And in May, Northstar sold a three-building complex in Phoenix for $17.4 million, records show.
Other transactions beyond those listed above include an office building in Centennial that Northstar sold last December for $9 million.
One thing that remains unsold is Watson’s 20,000-square-foot mansion near the 11th hole of Cherry Hills Country Club. He originally listed it last December for $8.3 million, although the asking price has since been raised to $9.98 million.