Back in January of this year, the bankruptcy trustee assigned to colorful imploded homebuilder Royce Homes obtained a $9.3 settlement from Amegy Bank for the bank’s role in what attorneys called a $39 million conspiracy — to swindle creditors by draining the collapsed builder’s bank accounts shortly before Royce shut down and was declared bankrupt, in 2008. A separate settlement with Royce Builders’ founder, Michael Manners, was reached in March. And earlier this month, a jury in federal court returned a $27 million verdict against Royce’s former CEO, John Speer, for his role in the escapade. (Back in March, an earlier jury had ended up deadlocked on a number of charges.)
According to reporting by Law360′s Jeremy Heallen, the charges stemmed from what the attorneys claimed amounted to an off-the-books leveraged buyout of Royce Homes. In 2006, Speer bought Manner’s 50 percent stake in the Royce Homes for $33 million, to give himself complete ownership of the homebuilder. Though the funds used to finance the purchase (including a $20 million personal loan from Amegy Bank) were borrowed in Speer’s own name, Speers, Manners, and Amegy came to an understanding that Royce Homes would ultimately be responsible for paying them off, the suit claimed. The purpose of the scheme, according to the claims, was to keep the loans off of Royce Homes’s financial statements, because doing so would have “wiped out most of the homebuilder’s equity and caused lenders to shut down vital credit lines,” Heallen reports.
If that was the scheme, though, it didn’t work, exactly: With the crash of the subprime housing market, the bankruptcy trustee alleged, Royce encountered major financial difficulties after spending millions to pay down Speer’s buyout debts. (Speer’s singular Cypress estate, which was listed for sale for $9.8 million until 2010, was featured on Swamplot in 2008)
“That’s when Speer, Manners and Royce Homes executive George Kopecky allegedly began distributing $39 million from the company’s accounts to themselves and family members,” Heallen’s Law360 report explains, “leaving Royce Homes in ruins and creditors who were owed some $41 million empty-handed.”
“We made Exhibit One in the case an email from the CFO saying we need to pay the CEO — take the money from loans,” T. Michael Dortch, the trustee’s attorney, tells Texas Lawyer.
“Undeterred by failure,” Heallen continues, “Speer and Amegy forged ahead with a new venture, using the ill-gotten gains, according to the suit.” The trustee is now seeking an additional $8.5 million to cover interest and attorney fees.
- Defunct Builder’s CEO Slammed With $27M Fraud Verdict and Jury Deadlocks In Fraud Suit Against Defunct Builder’s CEO [Law360]
- Ex-CEO at Royce Homes liable for $20 million, jury decides [Houston Chronicle ($)]
- Dallas Lawyer Discusses How a Few Choice Emails Sorted From Thousands Lead to $20 Million Verdict [Texas Lawyer]
- Royce Builders coverage [Swamplot]
Image: Royce Builders