An attorney accused Chattanooga developer Allen Casey on Tuesday of running something "like a Ponzi scheme" in which he took up to $7 million from deals involving riverfront land for which there's no accounting.
"Casey kept borrowing money and drawing money out without improving the property," said Gary Patrick, a lawyer for investors who are suing Casey and his River City Resort, at a U.S. Bankruptcy Court hearing.
Patrick said Casey and his company defrauded people related to the 9-acre tract located across the Tennessee River from the Tennessee Aquarium. A controversial barge is moored to the property.
"He treated this as his own back pocket," the attorney said.
However, a former attorney for Casey said he disagreed with Patrick over "about everything that was said."
"I don't know where the proof comes from that Casey took $7 million out of the property," said David Moss, who until January had represented Casey in a Hamilton County Chancery Court lawsuit filed in 2008.
Casey wasn't at the Bankruptcy Court hearing. But, in court papers filed in answer to the lawsuit, Casey has denied wrongdoing.
Casey's company, facing a trial related to the suit, filed for Chapter 11 bankruptcy protection Monday.
Following a three-hour hearing, Bankruptcy Court Judge Shelley D. Rucker denied a request by Patrick that bankruptcy proceedings be delayed until the civil trial, which had been scheduled for this week. It was unclear after the judge's ruling Tuesday if a Chancery Court trial involving just Casey himself would proceed today.
The vacant parcel located between Manufacturers Road and the river has been eyed by Casey for development for years. The 80-year-old businessman in 2004 announced plans for a 98-room hotel along with 60 condominiums, though nothing was built.
Casey, who originally developed the popular Chattanooga Choo Choo three decades ago, later brought the barge from Pittsburgh to Chattanooga with intentions of developing it into a New Orleans-style eatery and bar.
But that work hasn't occurred either, and Casey has been criticized for letting the barge become run-down.
David Fulton, a lawyer for Casey, said Tuesday the businessman plans to list 6 acres of the property for sale with a Chattanooga real estate company.
Fulton argued at the hearing that there are some 30 other creditors related to Casey's company, and not just the parties in the Chancery Court lawsuit.
"I know nothing about the Chancery Court case," he said.
Benjamin Pitts, a broker for Herman Walldorf Commercial, said the 6 acres already are listed for sale for $11.2 million.
Patrick said Casey had treated the property "like a piggy bank" through a series of transactions.
"He moved money around ... transferred property," Patrick said.
He said Casey had approached his clients for a loan in 1997 for about $519,000 and promised them a first mortgage on the 9 acres. But, Patrick said, no deed of trust was filed for his clients. He said it was later discovered that there were two other mortgages on the property.
Patrick said while Casey was obtaining money from his clients, the landowner was negotiating a deal with Regions Bank. Casey later sold about half the property for $2.9 million, Patrick said.
He said there have been 40 different transactions on the property through 2009.
Patrick said that it's unclear who owns the barge.
Bob Doak, chief executive of the Chattanooga Convention and Visitors Bureau and a critic of the barge, said that now that the case has advanced to the judicial system, he hopes the courts will finally resolve the barge issue and focus on what should be on the riverfront.
"From our perspective, Mr. Casey can resolve this issue today by removing the barge from downtown," Doak said in an email.
Judge Rucker set another hearing in the bankruptcy case for March 18.
An amended Chancery Court complaint brought last year against Casey and River City Resort named River City Barge and River Cafe LLC as plaintiffs along with John Winesett, Barbara Winesett, Dave Debter, Roy Roach and Greg Hellwig.
Contact Mike Pare at email@example.com or 423-757-6318.
Mike Pare, the deputy Business editor at the Chattanooga Times Free Press, has worked at the paper for 27 years. In addition to editing, Mike also writes Business stories and covers Volkswagen, economic development and manufacturing in Chattanooga and the surrounding area. In the past he also has covered higher education. Mike, a native of Fort Lauderdale, Fla., received a bachelor’s degree in communications from Florida Atlantic University. he worked at the Rome News-Tribune before ...