Three people behind a $675 million resort project in south DeKalb County that stalled a decade ago are now facing accusations that they spent investors’ money on shopping sprees, luxury resorts, night clubs and day trading.
The U.S. District Court in Atlanta ordered an emergency asset freeze last week after federal investigators alleged that the developers were still trying to raise money through a fraudulent $1 billion bond issue.
Two Atlanta men, Matthew E. White, 53, and Rodney A. Zehner, 49, and a third in Miami, Daniel J. Merandi, 35, ostensibly were aiming to revive the Grand Empire Palace and Resort near Lithonia, according to the U.S. Securities and Exchange Commission complaint. Besides having their assets frozen, the three men face civil charges of fraud and violations of federal securities laws.
The SEC said the men didn’t raise that sum, but pocketed the $5.6 million they did collect, and spent it on lavish shopping trips to retailers such as Saks Fifth Avenue, Gucci, Louis Vuitton, Prada and Versace. Investor money also bankrolled stays at the Greenbrier, a 158-year-old five-star resort in West Virginia.
“We allege that these men stole millions of dollars from investors for personal use and orchestrated sham transactions to prop up the price of the worthless, expired bonds at the center of the fraud,” said William P. Hicks, associate director of the SEC’s Atlanta Regional Office.
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Efforts by The Atlanta Journal-Constitution to contact White, Zehner, and their attorneys were unsuccessful. Merandi’s lawyer, Donald Samuel, said his client “denied that he’s involved in any fraudulent conduct.”
This is not the first time investors and lenders have lost a lot of money on the project, which was initially called Fun World Palace and Resort.
White, Zehner and their Atlanta development company, Top Flight Development Group, landed in bankruptcy court in 2006, barely a year after announcing grand plans for a 6,500-seat arena, an indoor amusement park, water park, hotel, retail shops and other construction on more than 100 acres near I-20.
After emerging from bankruptcy, the developers created a new company and refinanced the property with new backing, but landed in bankruptcy again in 2008. The developers never got beyond clearing the land.
Fallout from the failed project helped push former NFL star Jamal Lewis into bankruptcy in 2012. Lewis, who is from Atlanta, retired in 2009 after nine seasons with the Baltimore Ravens and Cleveland Browns.
He is not named in the SEC complaint, which concerns the developers’ actions after the project’s second failure.
Along with White, Lewis had personally guaranteed a loan for the project from a New York investment fund. That fund’s $25.7 million claim is the largest debt out of a total of $81.4 million that Lewis now owes to creditors, according to filings in his case in the U.S. Bankruptcy Court in Atlanta.
That total includes almost $2.3 million he owes to the IRS and $1.6 million to the Georgia Department of Revenue.
Meanwhile, the Grand Empire Palace and Resort landed in foreclosure in 2009. Nature began taking over the cleared land again.
Now, it’s just “lots and lots of trees,” said Linda McCullough, secretary at First Baptist Church of Lithonia, next to the failed development. She said the church sold a parcel to the development, and she’s kept a file on it through its tribulations.
“Fortunately, we did get our money,” she said.
That’s more than can be said for the folks who next dealt with the developers, according to the SEC.
Starting in 2011, White revived the shell company behind the project. He, Zehner and Merandi then used that firm and created several other paper companies that they used to sell worthless bonds to investors, according to the SEC.
The trio sold bonds to investors in Canada, California and the United Kingdom, usually at half of their face value. They told some investors they would repay the bonds within weeks at full value, the SEC said.
Under the bond agreement, the trio were supposed to invest the money from the $1 billion bond issue in a portfolio of securities. The earnings from those investments would be used to pay back the bonds as well as the development project’s costs.
But the trio “never came close to obtaining the funding necessary for their real estate project,” the SEC said in its complaint, filed July 27 in U.S. District Court in Atlanta.
Instead, they raised about $5.6 million.
White and Zehner wired part of the money through several accounts until it landed in a Bank of America account in their name, and they went shopping at the luxury retailers, the SEC said. White also spent $60,000 at a Mercedes dealership in Atlanta.
Meanwhile, the SEC said, Merandi spent investors’ money on nightclub outings and trips to the Greenbrier and lost $637,000 on day trading. He also sent $1.5 million to business associates and $940,000 to White and Zehner, the SEC said.