More bankruptcies, fraud charges, RICO accusations leveled at Wallace-Bajjali partner

The man who has been entrusted with the billion dollar development of the City of Joplin's tornado-stricken area has at least seven bankruptcies and a number of lawsuits on his record.

In the February 15 Turner Report, it was noted that the Wallace-Bajjali firm had been involved in three bankruptcies during a 27-month period. An internal investigation done by the city of Amarillo, Texas, adds involvement in four more bankruptcies to the face of Wallace-Bajjali, David Wallace.

The report, which was prepared as Amarillo considered using the Wallace-Bajjali firm (and despite the bankruptcies and lawsuits mentioned, Amarillo soldiered forward with the outfit), offers an assessment of each of the bankruptcy filings.

-Consolidated Power Battery Corporation, Chapter 7 Bankruptcy, filed August 22, 2000- "Mr. Wallace has indicated that the company was publicly traded and that he held a minority interest. It should be noted that the he was one of 10 board members at the time the entity filed bankruptcy. The company was delisted from the Vancouver Stock Exchange in December 2001 and the assets liquidated in a Chapter 7 case.

-Ameristar Aircraft Sales and Services, Chapter 7 Bankruptcy, filed August 4, 1994- "Per Mr. Wallace, he held a minority interest in the company. Appears the aircraft held by the company was liquidated and the proceeds applied to related debt." Though it is not mentioned in the city of Amarillo's internal documents, Wallace, according to printed reports, ran Ameristar Aircraft Sales and Services for his business partner at the time, Mark Thatcher, son of former British Prime Minister Margaret Thatcher. Before joining with Thatcher on numerous unsuccessful business ventures, Wallace had been the treasurer of Margaret Thatcher's foundation in the U. S.

-Ameristar Fuel Card, Inc. Chapter 7 Bankruptcy filed July 29, 1994- "Per Mr. Wallace, he held a minority interest in the company." Again, Wallace ran the company, though this was apparently not noted in the documentation Wallace-Bajjali provided to the City of Amarillo. "According to Mr. Wallace, assets were liquidated and applied to the debt." It was another Wallace-Thatcher operation.

- Emergency Networks, Inc filed September 15, 1992- Another of Wallace's collaborations with Mark Thatcher. "This was a bankruptcy of a company in which Mr. Wallace and Mr. Thatcher (or an affiliate) were investors and directors. According to Mr. Wallace, he was one of five board members and owned less than three percent interest in the company. Company was liquidated and assets sold." Again, no mention that Wallace was running the company.

The bankruptcy of Ameristar Fuel noted above, brought a lawsuit by the company's former owner, John Laughlin, accusing Wallace and Thatcher of fraud and RICO violations. In the lawsuit, Laughlin claimed that he was cheated after Wallace took over the firm in 1993, when the firm had a worth of $2 million. By the next year, according to Laughlin, the firm was six million dollars in the hole.

That lawsuit was reportedly settled by Thatcher for $500,000. An April 2, 1995, article in the London Sunday Times featured a claim by Ameristar financial controller Gretchen Hyland that Wallace had wired large amounts of money to Indonesia "without supporting documents."

Though Wallace and Thatcher were charged in the lawsuit with RICO violations, it appears that Wallace had nothing to do with some of Thatcher's other activities during the time they were partners, including a weapons deal with Saudi Arabia or an attempt to overthrow the government of Equatorial Guinea. Though political opponents accused Wallace of being involved in both of those activities during Wallace's unsuccessful attempt to run for former Congressman Tom DeLay's seat, a judge in a bankruptcy court lawsuit filed by another former partner of Wallace said there was no credible evidence that Wallace had anything to do with the foreign ventures. 

The Consolidated Power Battery bankruptcy also came complete with lawsuit, when the bankruptcy trustee sued Wallace for mismanagement. The lawsuit was settled with a $300,000 payment.

The City of Amarillo's internal documents indicate that Wallace was less than forthcoming about his bankruptcies. "The statements made in the Wallace-Bajjali document acknowledge that Mr. Wallace has been involved in a number of bankruptcies, but it does not tell them, nor does it explain why the bankruptcies were filed. To gain a useful understanding of these bankruptcies, court documents are being requested to investigate further."

From what we know of the city of Joplin's dealings with David Wallace and Wallace-Bajjali, through the research done by former City Manager Mark Rohr into the company, the decision by CART (Citizens Advisory Recovery Team) to hire the firm, and the trip taken to Texas by City Councilman Mike Woolston to vet Wallace-Bajjali, either they never came upon this information, or they did not think it was important enough to mention.

Previous Bankruptcies

Also not mentioned to the people of Joplin as the city entered negotiations with Wallace-Bajjali were the three bankruptcies noted in the February 15 Turner Report.

In that post, I wrote the following:

If Joplin City Council members are looking for evidence of a Wallace-Bajjali plan that not only got off the ground, but reached fruition, they need look no further than The Sanctuary.

The Sanctuary, "a private, gated, master-planned residential community located on 67 wooded acres" in Houston, Texas, is far beyond the means of most of the people who are reading these words, but it was the pride and joy of its developer, David Wallace of the Wallace-Bajjali firm.

In a news release dated November 3, 2008, Wallace said, "“Demand for lots is already extraordinary,This project boasts a fantastic location, an exceptional master plan, easy access to major highways and convenient shopping, as well as close proximity to Houston Intercontinental Airport.”

From the description of the homes, it was no wonder there was great interest:

Sanctuary will offer residents 24-hour guarded/gated access to an estate lot community that consists of 144 over-sized heavily wooded home sites, seven amenity parks with architectural design provided by Texas Four Architects, pedestrian walkways and trails, privacy fencing and strict deed restrictions and architectural guidelines.

And today, more than five years later, the homes in The Sanctuary are being filled.

No thanks to David Wallace and Wallace-Bajjali.

The project was done by Wallace-Bajjali through one of its subsidiary companies, WB Sanctuary Development Partners LP. Slightly more than two years after David Wallace touted his development (and his developing abilities) in that news release, on December 6, 2010, citing more than $12 million worth of debt, WB Sanctuary Partners LP filed for bankruptcy.

The following year, D. R. Horton, a construction firm, bought the development out of bankruptcy court. David Wallace and his partner, Costa Bajjali, are on to other projects, including the development of the tornado-stricken area of Joplin.

The WB Sanctuary Development Partners LP bankruptcy is one of at least three that have been filed by companies owned by Joplin's master developers.

Though City Manager Mark Rohr told the Joplin Globe that he and the City Council were fully aware of the SEC investigation, nothing in the three paragraphs in which the Globe has addressed Wallace-Bajjali’s problems mentions anything about the bankruptcies that have surrounded the firm.

The following passage is taken from the November 28, 2013, Turner Report:

Though the Wallace-Bajjali firm was not the name on the filing, Joplin’s master developers filed for bankruptcy January 1, 2013, and are more than $6 million in debt, according to documents filed in the U. S. Bankruptcy Court for the Southern District of Texas.

River Square Center Partners, the company that filed for bankruptcy, shares the same address and the bankruptcy petition was signed by Costa Bajjali. The River Square Center complex, which is operated by Wallace-Bajjali Development Partners, filed for Chapter 11 bankruptcy after defaulting on a $6,527,321.10 debt to Wells Fargo Bank, according to the court documents. The events leading to the bankruptcy were described in court documents:

The Debtor is the owner of a three-story 92,874-square-foot former warehouse building located at 215 2nd Street & 217 Mary Avenue in Waco, Texas, that has been converted to retail, restaurant, and office space and is currently considered a focal point for night life in downtown Waco.

The project is 93.0% leased to 17 tenants and has adequate cash flow to service principal, interest, taxes, and insurance on an on-going basis. The building was purchased by the Debtor in 2007 and renovated shortly thereafter.

Despite what appeared to be a good faith transaction, the seller of the Property used his relationships with existing tenants to lure them into another building nearby that offered below market rates due to redevelopment incentives provided by the City of Waco. This resulted in tenant rollover of of over 50% within a 24-month period and lowered overall rents generally – the majority of re-tenanting income fell into 2010 and 2011.

Since the Debtor did not have adequate funds to cover the unexpected releasing costs, the principals covered the majority of these costs out-of-pocket. By late 2011, however, the cumulative effect of the drain caused the Debtor to be late on a couple of payments which resulted in the assessment of default interest and late fees.

Even though the Debtor subsequently made payments in full and on time, LNR Partners (as special servicer for the Lender) applied the payments to default interest and late fees which left the loan constantly in default and subject to ever increasing late charges. In late 2012, significant negotiations with the special servicer of the Secured Debt were had in order to resolve the outstanding defaults.

The Debtor believed that a financial agreement had been reached, however the special servicer instead posted the Property for foreclosure for December 2012. In order to preserve the value of the Property, the Debtor transferred approximately $290,000.00 toward payment of the Debt. The December foreclosure was passed with this payment, however the Property was once again posted for a January 2013 foreclosure. The Debtor did not have the funds to again meet the financial demands of the special servicer and this Chapter 11 was filed in an attempt to preserve the equity in the Property and to address all the Debtor’s financial obligations.
And from the July 11, 2013, Turner Report:


The Texas company handling the $800 million development project was involved in yet another bankruptcy, according to documents filed in U. S. Bankruptcy Court for the Southern District of Texas.

The bankruptcy was not filed by Wallace-Bajjali Development Partners, but did list Wallace-Bajjali as a co-debtor. The Chapter 11 bankruptcy was filed Sept. 7, 2010, by SWB Waco SH LP and as in the Jan. 1, 2013 bankruptcy mentioned in the earlier Turner Report post, was filed to keep a bank from foreclosing on a part of the Wallace-Bajjali firm's Waco development project.

From the bankruptcy court documents:

The debtor owns a recently constructed 375-bed apartment complex, part of a redevelopment project of the downtown Waco area and serves primarily as an off-campus student housing facility at Baylor University.
The bankruptcy was filed to keep Sterling Bank from foreclosing on the property when SWB Waco SH LP could not make payments on a loan. Court documents indicate the company owed Sterling Bank $18 million and combined with other debtors listed, the debt was far in excess of $20 million.

The companies involved in the Waco development project and the two bankruptcies are both located in Sugar Land, Texas, a Houston suburb. Wallace-Bajjali co-partner David Wallace was once the mayor of that community.

In the 2010 bankruptcy filing, the city, county, and school district were among the creditors listed, the city of Waco for $117,684, McLennan County for $66,323, and Waco ISD for $204,517.

The Joplin Globe

This is what the area's newspaper of record, the Joplin Globe, has written to this point about Wallace-Bajjali's checkered background:

Wallace Bajjali has been involved in two projects that hit difficulty. Rohr said the firm disclosed details of those problems in its Joplin proposal, and that inquiries by city officials verified the firm’s admissions. Those incidents involve a bankruptcy taken by some its partners in the Amarillo project, and fines paid to the Securities and Exchange Commission for investment fraud committed by two partners in a radio acquisition deal. - March 27, 2012, Joplin Globe

With potentially billions of dollars at stake, the newspaper has not revisited the topic in more than two years.

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