UNDER CONSTRUCTION! This site is a few years out of date but feel free to have a look around anyway. I'll be updating in due course. Thanks. Dean, October 2019

Real Estate Magnate Draws Shareholder Ire For Odd Deal Making

Real Estate Magnate Draws Shareholder Ire For Odd Deal Making

DALLAS -- At Transcontinental Realty Investors Inc.'s annual meeting, three men sat before a room whose audience consisted of several dozen empty chairs.

It was time to vote on a slate of directors "Please raise your hands," said Karl L. Blaha, the company's president, asking if anyone wanted a ballot. He looked around the room. "Obviously, there's no one to do that."

Indeed, no outside shareholders showed up at that meeting last October. Nor did any directors. Maybe that's because the real power behind Transcontinental has an office down the hall. His name is Gene E. Phillips.

The 63-year-old Mr. Phillips has long been one of the most controversial figures in publicly traded real estate -- which, in that famously eccentric industry, is saying something. Best remembered as the head of Southmark Corp., the Dallas real-estate conglomerate that collapsed in 1989 in a swirl of lawsuits, Mr. Phillips now presides over a $2 billion empire of garden apartments, warehouses and office buildings belonging to Transcontinental and two other public companies.

For nearly 12 years, a group of Transcontinental shareholders has been trying to wrest power from him, arguing in a San Francisco lawsuit that he has abused his position to milk the company's assets for his private use. He's also under siege from prosecutors: In June, a federal grand jury in New York charged Mr. Phillips and a top aide with racketeering and wire fraud as part of an alleged scheme to pay kickbacks to corrupt pension-fund officials in exchange for investing with one of the companies he controlled.

Mr. Phillips's attorneys say he hasn't broken any laws and has done right by shareholders. Mr. Phillips declines to comment. He and an affiliate, Basic Capital Management Inc., have filed separate libel lawsuits against Dow Jones & Co., publisher of this newspaper, over two earlier stories. Last month Basic Capital sought a temporary restraining order to prevent the reporter of this article and two former directors from disclosing allegedly confidential information. "You're not supposed to be talking to me," Mr. Phillips angrily told the reporter outside Basic Capital's offices. "You're going to get buried...."

How Leo Wells Built Vast Empire Of Towers on Unusual Foundation

How Leo Wells Built Vast Empire Of Towers on Unusual Foundation

...Mr. Wells has skillfully ridden the wave of investor interest in real estate that began in late 2000, when stocks and bonds began to tumble. Most investors placed their bets through public REITs, the stock-market-listed funds that buy up commercial property and pay out 90% of their taxable income through dividends. While share prices in public REITs rise and fall, investors generally can get in and out of the stocks whenever they wish.

Despite a similar-sounding name, Mr. Wells's empire is built on a very different foundation. Called a nonlisted REIT, Mr. Wells's fund also buys up commercial property and pays a dividend based on income from that property. The Wells REIT's articles of incorporation state that it must list on a major stock exchange by 2008, or liquidate its assets and repay investors their initial capital -- and perhaps a bonus based on appreciation of the underlying properties.

Shares in the Wells REIT aren't traded on any major exchange -- so their value is difficult to determine. Investors pay a total of 14% in commissions and other fees, which effectively dilutes their capital. The REIT's management structure allows other Wells companies to pocket millions of dollars in management and other fees. And despite the goal of listing in 2008, the company could simply begin to liquidate its assets then, a process that could take years depending on market conditions. In fact, Mr. Wells has never fully repaid investors in any of his funds over the last 20 years.

Most large brokerage firms -- including American Express Co. and Merrill Lynch & Co. -- won't handle Wells, despite the hefty commissions. Mutual funds that invest in REITs don't buy Wells or other nonlisted REITs, saying their high fees and illiquidity make them a poor choice for investors. "We don't bother with those," says Steven R. Brown, portfolio manager for Lehman Brothers Inc.'s Neuberger Berman Real Estate Fund. "There's really no way to make those numbers work."

Wells executives argue that the company and other nonlisted REITs provide investors with the income and portfolio diversification of real estate without the gyrations of a public REIT stock. Mr. Wells says elderly investors aren't interested in selling shares and have suffered as interest-rate cuts trimmed returns from savings accounts and bonds. "It just destroyed those people," he says.

Fueled by an army of financial planners who sell the products in living rooms and seminars across the country, the nonlisted REIT business is booming. Investors poured more than $15 billion into a half-dozen nonlisted REITs from 2001 through May, according to Robert A. Stanger & Co., a Shrewsbury, N.J., research firm. In the past two years, major closely held companies, including Inland Real Estate Group, CNL Financial Group Inc. and Hines Interests L.P., have all rushed to launch private REITs.

Just this week, nonlisted REITs suffered a black eye when CNL abruptly postponed a plan to float a nonlisted hotel-owning REIT, CNL Hotels & Resorts Inc., on the New York Stock Exchange. CNL cited unfavorable "market conditions." Institutional investors balked at the $19 to $21 per share initial offering price and would only pay about $12, according to John Arabia, an analyst at Green Street Advisors Inc., Newport Beach, Calif. CNL had sold the shares in the nonlisted REIT at a split-adjusted fixed price of $20 to small investors in recent years.

The news points up a big drawback of the nonlisted REITs: Investors who want to sell their shares are often stuck. Mr. Wells's REIT, for instance, buys back 3% of outstanding shares a year on a first-come, first-served basis. The stock has careened around various secondary markets, trading at $5, $10.25 and $8.43 in May and June, the latest data available. At a gathering last year of real-estate executives at a posh private club in New York, Michael Fascitelli, president of Vornado Realty Trust, a giant public REIT, teased Mr. Wells on his stock's illiquidity, comparing it to a "roach motel."

"You can check in, but you can't check out," Mr. Fascitelli joked to raucous laughter, according to a person who was there. Through a spokeswoman, Mr. Fascitelli declined to comment.

Mr. Wells, who was there, brushes off such remarks. "Obviously, he knows more about roach motels than I do, but among nontraded public REITs, Wells has the most investor-friendly redemption policy," he says....

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How Prudential Had Tangled REIT Roles

How Prudential Had Tangled REIT Roles

...Mr. Schoninger said, "It's not uncommon for people to represent two different sides . . . and it's often just a matter of disclosure." Actually, it is uncommon -- but not unprecedented -- for one investment bank to be on both sides of the same deal. But it is less common when there is also a lending relationship with one side.

Captec, which leases property to franchisees of Taco Bell, Hooters and other restaurants, went public in 1997 as a REIT. The company was formed by Patrick L. Beach and his partners as the real-estate arm of their closely held firm. Captec Financial provides mortgages, equipment and other products to restaurant franchises, convenience stores and gas stations.

Prudential started working for both the REIT and the closely held company in the summer of 1998. Prudential real-estate bankers provided financial advice to the REIT; its financial-institutions specialists advised the closely held company. Prudential's credit unit provided a $250 million so-called warehouse credit line to the closely held company. Prudential also took warrants in the closely held company -- warrants that would have been cashed out in the merger.

The autumn of 1998 was rocky for both companies. Boston Chicken Inc., which rented 27 of the REIT's roughly 160 stores, filed in October for bankruptcy protection under Chapter 11 of the federal Bankruptcy Code. Then, as part of the Prudential credit line, the firm's credit arm required additional cash from the closely held company. Prudential Securities, a separate entity, then made $1.6 million in personal margin loans to Mr. Beach and two partners, who then re-loaned the funds to the closely held firm.

In January 1999, Prudential's financial-institutions bankers began exploring a sale of the closely held company, Captec Financial. By June of last year, two sets of Prudential bankers were talking to each other about Captec as the buyer. In August, Captec formed a special committee, which hired J.C. Bradford & Co., a brokerage firm in Nashville, Tenn., with a small banking practice, to negotiate on behalf of shareholders.

Francis O'Connor, who worked under Mr. Schoninger in Prudential's real-estate group, first advising Captec and then the closely held company, says the deal made sense because the REIT had few growth opportunities.

The plan was for Captec to re-emerge as a commercial-finance concern, dropping its REIT status and cutting its dividend by 71%. Captec hoped to purchase Mr. Beach's company and an external advisory firm he controlled for $26 million in Captec stock, plus another $19 million in shares of the REIT, depending on reaching certain earnings targets.

When the plan was announced Dec. 20, Captec shares dropped 33% to $6.25 from $9.75 in two days of Nasdaq Stock Market trading. Besides the dividend cut, some shareholders objected to the seemingly rich price to be paid for the closely held company....

Guardians May Need Someone to Watch Over Them

Guardians May Need Someone to Watch Over Them

Mr. Dice wore dapper cowboy boots, drove a sporty Dodge Stealth and flashed what a prosecutor calls an "award-winning smile." His firm, which he opened in the mid-1980s, quickly grew to eight lawyers who did strictly probate work and represented more than a dozen wards.

Dionne T. Shupe, 29 years old, was typical of the hard-luck cases Mr. Dice handled. She had been raised by mentally ill parents who allowed garbage to accumulate two feet deep around the house and made Ms. Shupe's retarded older brother eat from a dog dish. Social workers rescued her in 1981 and placed her in a foster home. She was later found to be legally incapacitated because of mental illness, court records say. In 1990, Mr. Dice was appointed conservator of a $125,000 estate left to her by a grandmother.

Prosecutors say he began to steal from Ms. Shupe and other clients soon afterward. According to court papers filed by state prosecutors and legal disciplinary authorities, Mr. Dice used his total control over his wards' accounts to write checks for himself. Once, he used the money of a paranoid-schizophrenic ward to buy two paintings and an etching for $3,900 for his personal collection, disciplinary authorities allege.

Mr. Dice filed annual reports with the probate court, but often omitted key information or made false entries, disciplinary authorities say in a complaint filed with the state professional disciplinary committee. Once, he intercepted a $25,000 check intended for a ward's account and deposited it in his personal account, the complaint says. Other times, Mr. Dice noted in his reports that he had borrowed from wards' accounts and given them "credit" and billed for "previous unbilled time," the complaint says.

Such entries, which aren't allowed under state law, "stood out like a sore thumb to us," says James C. Coyle, the assistant disciplinary counsel who handled the case. Mr. Coyle adds that the Denver probate judge who presided during most of the time of the thefts may have relied too much on Mr. Dice's reputation and not "looked as closely toward his billing as he should have."

The judge, Field C. Benton, who retired in 1995, denies giving Mr. Dice any "special consideration." He says, however, that the court didn't have enough people to carefully audit reports and often could only "scan them to see if there was nothing that caught the eye."

Prosecutors say Mr. Dice was ultimately stopped by two of his own associates, not the probate court. Mary Milan Bock, who joined his firm in 1993, says she was concerned about Mr. Dice's increasingly erratic behavior, like the time he met an important client wearing Spandex, drenched in sweat. Ms. Bock also noticed the unauthorized payments. After some agonizing nights, she says she and a colleague confronted their boss at a tense meeting in 1994. Mr. Dice argued that he was entitled to the payments and that the young lawyers didn't understand probate law, she says.

Ms. Bock and the other lawyer resigned and filed a complaint with the state disciplinary authorities.

Secrets and Lies: the Dual Career of a Corporate Spy

Secrets and Lies: the Dual Career of a Corporate Spy

...Despite his success, Dr. Lee worried about money and feared falling back into the poverty he knew in his youth in Taiwan, according to an FBI interview with him.

After his 1989 speech in Taipei, Dr. Lee joined Mr. Yang of Four Pillars for dinner at a restaurant. At dinner, according to an FBI affidavit filed in the case, Mr. Yang offered Dr. Lee periodic payments of $10,000 to $15,000 for Avery trade secrets. "Just teach or tell us something we don't know," Mr. Yang told Dr. Lee, according to the affidavit.

Dr. Lee neither accepted nor refused the overture; but he later admitted to the FBI that by Chinese tradition his silence meant he was accepting the offer.

Soon afterward, Dr. Lee mailed off details of Avery's general-purpose adhesive, known as GP-1, starting a stream of leaks that lasted seven years, according to prosecutors. The FBI affidavit says Dr. Lee mailed such "highly confidential" secrets as the formula for Gillette's self-testing Duracell battery labels, reports on high-quality paper-coating methods and details of a technology known as "hotmelt," which allows for high-speed application of adhesives to paper.

On yearly trips to Taiwan, the affidavit says, Dr. Lee lectured Four Pillars scientists on sensitive Avery formulas. Last year, in a downtown Taipei apartment, he disclosed a specialty-paper project codenamed "Aquarius" that Avery had spent $10 million to develop.

The thefts became so routine, the affidavit says, that Dr. Lee kept a sheet of labels preaddressed to Mr. Yang in Taiwan. In all, prosecutors say, he provided more than $50 million of secrets in return for a total of about $150,000 paid to a Taiwan account controlled by his mother-in-law.

Dr. Lee's seniority gave him access to computer passwords and a wide range of confidential Avery material. And some of his colleagues unwittingly assisted him by turning over secret reports Dr. Lee might not have been able to get himself.

His scheme unraveled in August 1996 when Avery and Four Pillars got into a tug-of-war over a young Four Pillars scientist the U.S. company was trying to recruit. Four Pillars threatened to sue the scientist, prompting him to give up on Avery and seek work elsewhere. But in an apparent act of revenge against Four Pillars, he revealed to Avery officials that Dr. Lee was a spy.

"We were all shocked," says Kim A. Caldwell, an Avery executive vice president, who until recently worked with Dr. Lee at the company's Concord campus.

After hiring the investigative firm of Kroll Associates to review the situation, Avery turned to the FBI. With help from company employees, the bureau staged a meeting in January, purportedly to discuss the company's Far Eastern plans. Dr. Lee came back to the room after business hours and was caught by an FBI video camera, winter gloves and all, rifling the plans....