Civil lawsuit accuses Baltimore developers of fraud

An investor is accusing local developers of fraud regarding the rehabilitation of properties in the North Central Historic District.

San Francisco-based Foss and Co. filed a lawsuit in Baltimore City Circuit Court against Ibrahim Sheikh, Mohammed Ali Farooq and Sameena Farooq, as well as the companies Station North Development LLC and Maryland Management & Restoration LLC, seeking $75,000 in compensatory damages and undefined punitive damages. The lawsuit accuses Sheikh, with the knowledge of Sameena Farooq and Mohammed Ali Farooq, of providing false information to secure an investment.

“Defendants’ scheme was to induce Foss to invest money into the Station North Project, falsify documents and generate false invoices to justify the investment, make false representations to the federal and state governments regarding the level of costs to rehabilitate the Properties to generate historic tax credits, and then sell the Properties and Land, and move on to their next scheme,” according to the lawsuit.

Calls seeking comment to the plaintiffs at their offices at Maryland Management & Restoration LLC were not returned.

In 2011, Sheikh, Mohammed Ali Farooq and Sameena Farooq, personally or as members of 421 East Lafayette LLC and Yankee Development 2 LLC, purchased properties at 115 E. Lafeyette St.; 415 E. Lafayette St.; 406 E. Lanvale St.; and 414 E. Lanvale St. with the intention of rehabilitating the properties as “luxury rentals,” according to the lawsuit. The project was referred to as the “Station North Project” and the plan was to qualify for historic tax credits.

In August of that year, Sheikh and Mohammed Ali Farooq approached Foss about investing in the project by entering into a master lease/credit pass-through structure arrangement. Foss, under the terms of the deal, would serve as the third-party, tax-credit equity partner.

This arrangement usually works by the developer and the credit equity partner establishing a master tenant LLC managed by an affiliate of the developer, according to the lawsuit. The credit-equity partner then provides equity for the rehabilitation and maintains substantial interest, usually 99.99 percent, in the master tenant. The developer then passes tax credits through the master tenant and the equity partner receives its share of tax credits, profits, losses and cash flow.

Following negotiations, Foss & Co., and the developers entered into a series of agreements establishing a master lease arrangement. But the company alleges that after it made its initial investment, the developer sought an additional capital contribution and provided the company with forged certificates of occupancy for two of the properties.

It’s also alleged that the developers provided the investor with certificates of substantial completion and told the investor that the historic tax credits were available. But the buildings were not anywhere near completion and the tax credits were not available. The investor also contends, in the lawsuit, that the developer provided a tax credit cost certification laying out the cost of the rehabilitation that were “materially incorrect and false.”

Sheikh, as a principal at Red Canyon Properties, a company founded by his aunt Sameena Farooq, handled the redevelopment of the Land Bank Lofts at 2315 St. Paul Street. The property, which opened in 2010, converted the former Federal Land Bank building into luxury apartments.

Last month, Sameena Farooq and Mohammed Ali Farooq sued three anonymous posters for $2.6 million each for defamation. The suit alleges that the three “John Doe” posters left comments on websites, such as ApartmentRatings.com, that falsely alleged the property owners stole security deposits, used an electronic device to spy on tenants and made racist remarks.