Dozens of frustrated families who planned to build high-end houses in a mountain subdivision in North Carolina have filed suit against Columbus-based Synovus Financial Corp., claiming bank officers and a profligate developer fraudulently persuaded them to invest millions of dollars in a neighborhood that never materialized.
The three lawsuits, filed recently in Muscogee County Superior Court, added to the flurry of litigation engulfing the Seven Falls Golf and River Club, a much-hyped golfing community about 30 miles south of Asheville, N.C., that was once expected to include 900 homes, an Arnold Palmer signature golf course and a luxury hotel, among other amenities.
The plaintiffs — a wide array of couples from several states, including Georgia — purchased residential lots in the subdivision for hundreds of thousands of dollars between 2006 and 2008, expecting some construction to be done by the end of 2009. The developers, however, have made almost no progress on the land, which has fallen into disrepair and violated state and federal environmental regulations, according to local officials and court documents.
“Plaintiffs cannot even drive a vehicle to their property, much less apply for construction permits to build a home,” the lawsuits claim.The suits allege the National Bank of South Carolina, a Synovus division, orchestrated an aggressive marketing campaign to attract residents and bankrolled the project, loaning millions to the community’s now-beleaguered developer, Keith A. Vinson. The suits claim Synovus benefited from more than $50 million of investments in residential lots — many of which were financed through NBSC — by counting the interest payments on its bank income statements, bolstering the price of its publicly traded stock.
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The lawsuits claim the bank prematurely canceled $63 million in funds committed to Seven Falls without telling investors, and claimed a loss on the development in order to receive funds from the federal Troubled Asset Relief Program (TARP). Synovus in December 2008 received $968 million from the program through sales of preferred stock and other securities to the U.S. government, money it has yet to repay. Court documents show the bank eventually lost all confidence in Vinson and began foreclosure proceedings on the property, a move that further enraged investors. Mired in litigation, Vinson sought Chapter 11 bankruptcy protection last year but was unable to secure any post-petition financing.
The plaintiffs requested a judge stop the foreclosures at Seven Falls while attorneys conduct discovery. The lawsuits seek an unspecified amount of damages from the bank and Vinson for fraud, breach of contract, civil conspiracy and deceptive trade, among other claims. “This isn’t something we could call a Ponzi scheme, but it certainly was a scheme whereby the bank got our folks’ money and did not properly apply it the way our folks expected to this project,” the plaintiffs’ attorney, Ryan Langley of Spartanburg, S.C., said in a phone interview. “We believe in what these folks are telling us, and we believe they were done wrong.”
Vinson could not be reached for comment. His attorney did not respond to a request for comment.
Synovus would not comment on the suits’ specifics but released a statement to the Ledger-Enquirer saying, “We strongly disagree with the allegations of the lawsuits and will vigorously defend against them.”
“Plaintiffs’ counsel has filed these same claims in other jurisdictions, but dismissed each of the cases after the bank submitted motions to dismiss,” the statement added.
The plaintiffs initially filed the suit as a class action in South Carolina but voluntarily dismissed it.
About four years ago, the Seven Falls Golf and River Club created quite a stir. A 2,000-acre community along the French Broad River in the Blue Ridge Mountains, the private community promised to be the largest subdivision ever in Henderson County, west of Hendersonville, N.C. The developers boasted a long list of amenities, including an amphitheater, pub, cafe bakery, tennis courts, wine store and wellness center.
“There was a huge buildup, and there were really great expectations with the buildup,” said Steve Wyatt, the Henderson County manager. “From the government perspective here, obviously the taxable investment that was going to be made out there was not something we were counting on. But in the down economy, in hindsight, it looks pretty good.”
An economic impact analysis projected a massive benefit for Henderson County. But Wyatt said that, for some, it wasn’t all about money. “In fairness to the bigger picture, not everybody was excited about the development,” Wyatt said. “Etowah didn’t want to lose its small-community atmosphere by injecting however many thousand people, taxing the infrastructure and the tranquility.”
Perhaps the most alluring draw of the community was the Arnold Palmer Premier championship course, once expected to be complete by fall 2008.
According to the lawsuits, the first investors in the community selected their residential lots during a May 2007 event at the Biltmore Estate with Palmer in attendance. The lawsuits claim Palmer flew into the party by helicopter. A month later, the lawsuits claim, NBSC and the developers hosted a private concert at the Biltmore featuring The Blues Brothers. At a groundbreaking a year later, another concert was held featuring acclaimed saxophonist Kenny G.
“These extravagant marketing tactics were used by NBSC and the developer to persuade consumers into believing Seven Falls was fully funded by NBSC and financially stable,” the lawsuits stated.
Around the same time, the lawsuits claim Vinson was spending money on lavish trips with bank officers. The suits allege that Vinson bought a Gulfstream private jet 26 days after NBSC transferred him $20 million intended for Seven Falls. Vinson allegedly used the plane to fly bank officers on a ski trip to Colorado and then to watch the 2008 Super Bowl in Glendale, Ariz.
“This was during the time that NBSC was obligated by bond to complete the roads, bridges and utilities at Seven Falls,” the suits state. “NBSC executives failed to take this action, or exercise a bond to take the action, presumably because they preferred instead to continue to enjoy the lavish benefits from the developer.”
The lawsuits claim that NBSC increased the risk of investment in Seven Falls by failing to comply with its own internal lending standards. The investors claim the bank did not ensure Vinson had “appropriate experience, competence and capitalization” and failed to require adequate release fees from the developer at closings on Seven Falls lots. They also claim the bank did not regularly inspect the progress of construction.
The lawsuits added to a whirlwind of legal action surrounding Vinson, who has struggled to pay his bills. Last month, a federal judge in North Carolina ordered Vinson and Seven Falls to pay more than $600,000 in damages and attorneys’ fees to manufacturer Textron. Amid their financial turmoil, the developers were unable to pay for hundreds of thousands of dollars in EZ-Go golf carts, turf groomers, trailers, mowers and other equipment.
The legal proceedings facing Synovus come with the regional banking firm digging itself out of a massive financial hole created from its failed loans to various developers across the Southeast. Bad residential development loans in areas of Florida and South Carolina, as well as in the once-hot Atlanta market, have hurt it the worst.
The company’s largest loan customer, Sea Island Co., a coastal Georgia resort development and management firm, has been its largest loss. It reportedly lent Sea Island more than $250 million for expansion prior to the Great Recession, which began in December 2007 and officially ended in the summer of 2009. Sea Island filed for bankruptcy protection last year before being sold in private investment firms.
In response to its financial woes, Synovus has written off nearly $3 billion in loan losses since 2008 and cut more than 2,000 jobs from its work force. That includes 850 positions being eliminated early this year, plunging the company’s staff total to just under 5,300.
The firm has not reported a quarterly profit in 10 quarters, although Synovus Chief Executive Officer Kessel Stelling said recently he expects a quarterly profit to materialize by the end of this year.