Nuveen sues firm over failed golf resort

Nuveen Investments Inc., the Chicago-based manager of $70 billion in municipal debt, sued an Arkansas bond underwriter, alleging it failed to disclose key information in offerings to finance a Louisiana golf resort.

Nuveen, which bought $39.25 million of debt underwritten by Crews & Associates Inc. in 2006 and 2007, said the Little Rock- based securities dealer didn't reveal that Carter Plantation's developer failed to pay vendors, defaulted on loans and misappropriated funds, according to a complaint filed June 7 in federal court in Little Rock.

Crews "knew that the Carter Plantation development was a large and complex project and knew that it would be important to potential purchasers of bonds or notes to be informed if CP Land and CP Golf were encountering financial difficulties," according to the complaint.

Nuveen said it purchased Carter Plantation obligations for four funds, including the $5 billion Nuveen High-Yield Municipal Bond Fund. It sold $13.7 million of Carter Plantation bonds at a 40 percent loss and is marking down some of the debt to 51 cents on the dollar, according to financial statements.

Brant Enderle, who co-managed developer CP Land LLC and wasn't sued by Nuveen, said he never misappropriated funds. Carter Plantation, about 65 miles (105 kilometers) northwest of New Orleans, failed because hurricanes Katrina and Rita damaged the Louisiana economy in 2005, he said. The U.S. housing market collapse further sealed the fate of the project, which is now in receivership, Enderle said.

Three Hurricanes"Real-estate sales stopped," Enderle said in a telephone interview from Knoxville, Tennessee. "Getting hit by three hurricanes didn't help either." After Katrina and Rita, Hurricane Ike struck Louisiana in 2008.Crews President Jim Jones, reached by e-mail, declined to comment on Nuveen's suit. Andy Loving, general manager at the Carter Plantation, didn't return calls. Kathleen Cardoza, a spokeswoman for Nuveen, declined to comment.Nuveen is seeking to recover losses on a portion of the bonds sold back to Crews and wants the underwriter to return the principal amount it paid for the $25.6 million debt it still holds, plus accrued and unpaid interest.Carter Plantation's developers began issuing bonds to finance construction of the golf community in 2004. The golf course and country club were completed later that year. Nuveen bought $22 million of bonds issued through the Carter Plantation Community Development District. Those bonds aren't the subject of Nuveen's lawsuit.Financial DifficultyBy mid-2006, CP Land was in financial difficulty and "decided to try to finance its way out of its problems" by selling another $40 million in bonds and notes to Nuveen, according to the complaint.In August 2006, Nuveen bought $15 million of bonds underwritten by Crews to add 60 hotel rooms and a conference center at Carter Plantation.In the offering statement for the debt, Crews didn't disclose that CP Land had defaulted on a $236,000 loan and failed to pay $8,000 in payroll taxes for golf course employees, according to the complaint. The course was pledged as collateral for the hotel bonds.In addition, the developer deliberately underestimated the amount of bond proceeds it needed to buy land and make site improvements for the hotel and conference center, Nuveen said in the complaint.Land-Purchase LoansThe bond statement didn't reveal that CP Land's internal budget called for $3.5 million for the acquisition and improvements, according to the complaint. A study by a consultant that was attached to the official statement estimated the cost at $900,000.The developer used some of the $15 million in bond proceeds to finance operations at the Carter Plantation golf course and another course in Arkansas, and to pay off bank loans, according to the complaint.In June 2007, when CP Land was overdue on $1.5 million in payments to other lenders, Nuveen bought $10.7 million of taxable notes in a private placement intended to refinance and consolidate Carter Plantation's debt, according to the complaint. The investment firm purchased another $13.7 million of debt in a limited offering to build a marina in September 2007.Nuveen wouldn't have bought the additional debt if Crews had disclosed CP Land was diverting construction funds and was in default on loans, according to the complaint.Sham RequestIn 2008, Carter Plantation's developer made a sham request to the bond trustee for $145,000 to pay an architect, Nuveen asserted. The money was used instead to pay operating expenses at the golf course. About the same time, the developers were sued for an unpaid mortgage of about $400,000 and past-due rent of $535,000, Nuveen said in the complaint.Following another sham request to the bond trustee, for vendor payments, Enderle transferred $190,000 into his bank account and paid $400,000 to Louisiana for CP Land's back taxes, according to the complaint.In October 2008, Enderle told Nuveen that debt service on the bonds issued in 2004 and 2005 would be paid by reserve funds. The next month, he said the developer didn't have enough money to build the hotel or marina, attributing the problem to the national recession.