Originally created 01/19/98

Man convicted of fraud sues in bond deal



While Michael G. Morgan was facing federal bank fraud charges in Connecticut, he was in the thick of a $6.5 million tax-free bond deal in Augusta to buy and renovate a low-income apartment complex in 1994.

Since then, the project's financing went into default and foreclosure. Mr. Morgan was convicted of six counts of bank fraud involving real estate deals and sentenced to 33 months in prison, and he has filed a Richmond County Superior Court civil lawsuit, alleging he is being cheated out of some $2.62 millions in the Augusta tax-free bond deal.

And now, the 296-unit apartment complex, Pine Walk Apartments on Southgate Drive, is mostly empty and still in disrepair. Low-income people in need of housing are still looking, and tax money the state could have collected or invested in a worthy project is wasted unless someone else takes up the apartment complex.

According to city tax records, the apartment complex was last assessed at $1.75 million, although the market value was listed at $4.38 million. In October, it brought $49,015 in city taxes to the local coffers.

"Mr. Morgan is a consummate con artist, I can tell you that," said Doug Batchelor, who represented the Housing Authority of Augusta that served as the conduit for the tax-free bonds in 1994. But Mr. Morgan did tell Mr. Batchelor up front that he was facing criminal charges in Connecticut.

The housing authority doesn't have any potential liability in the financial failure of Pine Walk Apartments, Mr. Batchelor said. The people left holding the tax-free bonds secured only by the apartment complex are the ones at risk, he said.

Those people are investors of the Colonial Management Associates, which holds $5.5 million in bonds, and Mr. Morgan, who bought the $1 million worth of secondary bonds for the project. Although Mr. Morgan put the deal in motion, Colonial Management refused to buy the majority of the bonds if Mr. Morgan received the money directly, Mr. Batchelor said. At that point in 1994, Mr. Morgan brought in a friend and business partner, Robert N. Bradley of Roanoke, Va.

The Augusta Housing Authority got the tax-free bonds from the state, IBJ Schroder Bank & Trust Co. of New York agreed to serve as the trustee for the bond proceeds and repayment, and Mr. Bradley got the money to buy and renovate the low-income housing project.

"If they had (let Mr. Morgan handle the project) the thing wouldn't have gotten into trouble," said Augusta attorney John Long who is representing Mr. Morgan in his civil lawsuit.

Within a year, Mr. Bradley was in default, and IBJ Schroder Bank & Trust foreclosed on the property. The bank itself became high bidder and formed a new company to hold title to Pine Walk Apartments. When Mr. Morgan discovered the complex was to be sold for a little more than half of the 1994 purchase price -- and a price that would leave his secondary $1 million bonds effectively worthless, because there wouldn't be enough money to pay off the bonds held by Colonial Management and him -- Mr. Morgan filed suit.

Mr. Morgan, who had loaned Mr. Bradley money to get into the deal and then bought the secondary bonds, wanted to take over the project or buy the apartment complex in 1995 and 1996, but Colonial squeezed him out, Mr. Long said.

In March 1996, Mr. Morgan was convicted of bank fraud and misapplication of bank funds in connection with three real estate deals while he was president of Charter Federal Savings & Loan Association in Stamford, Conn. The savings and loan he founded in 1984 was declared insolvent and seized by federal regulators in 1990. Taxpayers were out about $42 million.

Although sentenced to 33 months in prison nearly two years ago, Mr. Morgan has remained free on bond -- and has moved to an estate on Chesterfield Street in Aiken.

This month, his Connecticut attorneys convinced a federal judge there to delay Mr. Morgan's report date to prison to Feb. 1 so he could testify at his Richmond County Superior Court trial, which was expected to take place later this month. However, a pretrial hearing is now scheduled for Feb. 9.

Mr. Morgan's federal conviction in Connecticut has nothing to do with the Augusta low-income housing project, Mr. Long said. And he just wants the money he put in the project, plus the money in tax credits that Mr. Bradley promised to give to him.

Although District Attorney Danny Craig is the chief prosecutor for Augusta and must take part in any governmental bond issuance, he knew nothing of Mr. Morgan's pending criminal charges in 1994.

Private companies often do criminal background checks on potential employees, but Mr. Craig cannot do such a check on someone in Mr. Morgan's position, he said. Unless the person consents, the law doesn't allow prosecutors to run a background check on people who become responsible for millions of dollars in tax-free bonds and major community projects, Mr. Craig said.

"We're dealing with a gap here," Mr. Craig said.

Mr. Long, a self-described financial conservative, doesn't believe the government has any business in providing the tax-free bonds, in effect tax-free financing and investing, for anything but government buildings and schools. There are dozens of such housing projects like Pine Walk in Augusta, he said.

"Nobody ever pays attention to this. Maybe they should," Mr. Long said.

BYLINE1:By Sandy Hodson

BYLINE2:Staff Writer

While Michael G. Morgan was facing federal bank fraud charges in Connecticut, he was in the thick of a $6.5 million tax-free bond deal in Augusta to buy and renovate a low-income apartment complex in 1994.

Since then, the project's financing went into default and foreclosure. Mr. Morgan was convicted of six counts of bank fraud involving real estate deals and sentenced to 33 months in prison, and he has filed a Richmond County Superior Court civil lawsuit, alleging he is being cheated out of some $2.62 millions in the Augusta tax-free bond deal.

And now, the 296-unit apartment complex, Pine Walk Apartments on Southgate Drive, is mostly empty and still in disrepair. Low-income people in need of housing are still looking, and tax money the state could have collected or invested in a worthy project is wasted unless someone else takes up the apartment complex.

According to city tax records, the apartment complex was last assessed at $1.75 million, although the market value was listed at $4.38 million. In October, it brought $49,015 in city taxes to the local coffers.

"Mr. Morgan is a consummate con artist, I can tell you that," said Doug Batchelor, who represented the Housing Authority of Augusta that served as the conduit for the tax-free bonds in 1994. But Mr. Morgan did tell Mr. Batchelor up front that he was facing criminal charges in Connecticut.

The housing authority doesn't have any potential liability in the financial failure of Pine Walk Apartments, Mr. Batchelor said. The people left holding the tax-free bonds secured only by the apartment complex are the ones at risk, he said.

Those people are investors of the Colonial Management Associates, which holds $5.5 million in bonds, and Mr. Morgan, who bought the $1 million worth of secondary bonds for the project. Although Mr. Morgan put the deal in motion, Colonial Management refused to buy the majority of the bonds if Mr. Morgan received the money directly, Mr. Batchelor said. At that point in 1994, Mr. Morgan brought in a friend and business partner, Robert N. Bradley of Roanoke, Va.

The Augusta Housing Authority got the tax-free bonds from the state, IBJ Schroder Bank & Trust Co. of New York agreed to serve as the trustee for the bond proceeds and repayment, and Mr. Bradley got the money to buy and renovate the low-income housing project.

"If they had (let Mr. Morgan handle the project) the thing wouldn't have gotten into trouble," said Augusta attorney John Long who is representing Mr. Morgan in his civil lawsuit.

Within a year, Mr. Bradley was in default, and IBJ Schroder Bank & Trust foreclosed on the property. The bank itself became high bidder and formed a new company to hold title to Pine Walk Apartments. When Mr. Morgan discovered the complex was to be sold for a little more than half of the 1994 purchase price -- and a price that would leave his secondary $1 million bonds effectively worthless, because there wouldn't be enough money to pay off the bonds held by Colonial Management and him -- Mr. Morgan filed suit.

Mr. Morgan, who had loaned Mr. Bradley money to get into the deal and then bought the secondary bonds, wanted to take over the project or buy the apartment complex in 1995 and 1996, but Colonial squeezed him out, Mr. Long said.

In March 1996, Mr. Morgan was convicted of bank fraud and misapplication of bank funds in connection with three real estate deals while he was president of Charter Federal Savings & Loan Association in Stamford, Conn. The savings and loan he founded in 1984 was declared insolvent and seized by federal regulators in 1990. Taxpayers were out about $42 million.

Although sentenced to 33 months in prison nearly two years ago, Mr. Morgan has remained free on bond -- and has moved to an estate on Chesterfield Street in Aiken.

This month, his Connecticut attorneys convinced a federal judge there to delay Mr. Morgan's report date to prison to Feb. 1 so he could testify at his Richmond County Superior Court trial, which was expected to take place later this month. However, a pretrial hearing is now scheduled for Feb. 9.

Mr. Morgan's federal conviction in Connecticut has nothing to do with the Augusta low-income housing project, Mr. Long said. And he just wants the money he put in the project, plus the money in tax credits that Mr. Bradley promised to give to him.

Although District Attorney Danny Craig is the chief prosecutor for Augusta and must take part in any governmental bond issuance, he knew nothing of Mr. Morgan's pending criminal charges in 1994.

Private companies often do criminal background checks on potential employees, but Mr. Craig cannot do such a check on someone in Mr. Morgan's position, he said. Unless the person consents, the law doesn't allow prosecutors to run a background check on people who become responsible for millions of dollars in tax-free bonds and major community projects, Mr. Craig said.

"We're dealing with a gap here," Mr. Craig said.

Mr. Long, a self-described financial conservative, doesn't believe the government has any business in providing the tax-free bonds, in effect tax-free financing and investing, for anything but government buildings and schools. There are dozens of such housing projects like Pine Walk in Augusta, he said.

"Nobody ever pays attention to this. Maybe they should," Mr. Long said.