Posted on Fri, Jan. 18,
NMB developers say they were duped by financier
By David Wren - The Sun News
NORTH MYRTLE BEACH --Developers of the failed Bahama Island and Crystal Palace condominium projects here say they fell for a financier's story about foreign bonds because they didn't fully understand how the purported global banking transactions worked.
Tommy Hix and Jeff Shoup, partners in T&J Development of North Myrtle Beach, say they gave Duwayne Woods $5.7 million in buyers' deposits because Woods said his Atlewa Trust company could finance construction of the condos through a foreign bond it held on Euroclear, a securities clearinghouse based in Belgium.
Woods, whose last known address was in San Diego, took off with the deposits but never provided the financing, according to Hix and Shoup.
Hix and Shoup, who live in Briarcliffe Acres, say they have not been able to contact Woods since February or recover the missing money.
Woods' assistant, Melissa Smith, stated in an e-mail last week that Woods "is not interested in discussing this matter with you."
Shoup said Woods showed him documents in mid-2006 purportedly showing Atlewa Trust had a bond registered on Euroclear.
Shoup said Woods told him and Hix that he had $100 million in financing for condo projects, and that the bond would be the source of that money.
Shoup said he was not familiar with Euroclear and foreign bonds, but the documents looked legitimate.
"Everything was so believable, and I wanted to believe," Shoup said.
Shoup said Woods told him he didn't want to finance the condo projects through a Wall Street bank because it would take too long.
"He told us he could do it much quicker through Euroclear, because the Euro is stronger than the dollar," Shoup said.
Shoup said he and Hix checked with bankers they know to make sure the funding process Woods described to them was accurate.
However, the developers never checked to see if Woods' story was legitimate, Shoup said.
"We verified that's the way it's done," Shoup said. "We did not verify what Woods was doing."
Denis Peters, Euroclear's director of corporate communications, said trusts are not allowed membership in Euroclear.
"Trusts are not active enough in foreign capital markets to warrant direct membership in Euroclear," he said.
That means Atlewa Trust would not have been able to issue its own bond on Euroclear.
Peters said it is unlikely a single entity, such as Atlewa Trust, would have full ownership of a bond that had been issued by someone else.
"I can't imagine that an issuer would want one single investor to own a bond that would be made available for public trading," Peters said. "If an entity wanted to raise capital, and identified one investor, then they would more likely do a private transaction with that party."
Woods seemed so knowledgeable about foreign bond transactions, Shoup said, that the developers "believed that what he was saying was the truth."
Shoup said Woods kept making excuses when financing didn't come through.
"He kept having issues with the bond," Shoup said.
The foreign bond scenario is similar to what happened during the same time frame at another company where Woods is affiliated, according to the Securities and Exchange Commission.
A Dun & Bradstreet report lists Woods as chief operating officer at Conversion Solutions Holding Corp., an Adairsville, Ga.-based public company that claimed to own foreign bonds traded on Euroclear, according to court documents.
The SEC is suing Rufus Paul Harris, Conversion Solution's chief executive, over an alleged pump-and-dump stock scheme in which the federal agency says Harris promoted false ownership in foreign bonds to boost the company's share price.
Harris denies the allegations in court filings and the lawsuit is pending.
Harris and Woods are longtime business partners, court records show.
The two men formed Atlewa Trust in 2004, along with former Myrtle Beach resident Ancil Garvin.
Harris, Woods and Garvin are defendants in lawsuits filed against Bahama Island's developers on behalf of investors who lost millions of dollars in deposits.
Conversion Solutions claimed in September 2006 that it had full ownership of a Venezuelan bond on Euroclear that purportedly was worth 5 billion euros, according to court documents and the company's SEC filings.
While the bond did exist, an SEC investigation showed it was worth 700 million euros and Conversion Solutions never had full ownership, if it had any ownership at all.
The same was true of a separate $500 million Venezuelan bond Conversion Solutions claimed to own, according to the SEC.
Harris, whose last known address was in Adairsville, did not respond to an e-mail seeking comment.
Harris said in October that he met with Woods in early 2007 to talk about Atlewa Trust's purported Euroclear bond.
Woods "said he had $750 million in bonds loaded on Euroclear and he wanted me to help him find investors," Harris said.
Harris said the bonds were supposedly backed by real estate projects in South Carolina, Florida and Baja, Mexico.
Most U.S. investors are not familiar with Euroclear, according to the SEC, and it is difficult to verify claims made about foreign bonds at the securities clearinghouse because Euroclear requires a password that is available only to member organizations.
"No individual could become a member of Euroclear," Peters said.
"Only financial institutions that meet very strict criteria can become members."
Dozens of lawsuits have been filed against Hix, Shoup and others on behalf of Bahama Island and Crystal Palace buyers who lost money.
Shoup said he hopes the pending sale of the land where Bahama Island was supposed to be built will raise enough money to pay back those investors.
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Quick information
Crystal Palace was supposed to be a 35-unit oceanfront condo tower built on two lots in the 900 block of South Ocean Boulevard in North Myrtle Beach. About $600,000 in buyers' deposits is missing from that project.
Bahama Island was supposed to be a 320-unit condominium and marina project built along the western bank of the Intracoastal Waterway. About $5.1 million in buyers' deposits is missing from that project.
National Bank of South Carolina is foreclosing on the Bahama Island land because the developers have not made payments on a $7.7 million mortgage they received.
Developer Jeff Shoup said he hopes there will be enough money left over from the sale of that property to pay off the mortgage and refund deposits to Bahama Island and Crystal Palace investors.
Shoup and partner Tommy Hix marketed the condos through their Oceanfront Real Estate Co., which transferred the deposits from an escrow account to Woods.
By last February, the Bahama Island and Crystal Palace deals had collapsed and Woods and investors' money had disappeared, according to Shoup.
Contact DAVID WREN at 626-0281 or dwren@thesunnews.com.
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