Exclusive: Federal judge orders report on Wallace-Bajjali

Earlier today, a federal court judge ordered a report on the status of the repayment of millions of dollars investors were cheated out of by Wallace-Bajjali Development Partners and others who were involved in a scam that forced the Securities and Exchange Commission to crack down on them in 2012.

Judge Nancy F. Atlas of U. S. District Court for the Southern District of Texas ordered court-appointed receiver Thomas L. Taylor III to have the report ready by Feb. 13. Any disputes of that report must be filed by Feb. 20.

The order was issued one day after Judge Allen received a copy of a letter from investor Diane Collings of Houston to Taylor relating the recent developments with Wallace-Bajjali.

I am writing to make sure you are aware of important changes in the Wallace-Bajjali organization and to request an update on the receivership.

The Wallace-Bajjali organization appears to be falling apart. In November of last year, we were made aware of Costa Bajjali's intention to leave that organization. A few days later, David Wallace did his best to put a good spin on that situation and assured the investors there was no need for concern. It appears that the situation has degraded.

Today, we received another letter from Costa Bajjali notifying investors that David Wallace has also resigned as manager and employee of Wallace-Bajjali organization. This leaves all of the Wallace-Bajjali Funds, the Holding Company, and all related properties without any active management.

These events will no doubt impact Wallace-Bajjali Development Partners' ability to honor their obligations to the receivership and to their investors.

Were you aware of this instability in the Wallace-Bajjali organization? Did the Wallace-Bajjali organization make any substantial payments to the receivership last year. If not, would you consider those payments in jeopardy?

The SEC fined Wallace and Bajjali $60,000 apiece and ordered them to repay $1.2 million, with $450,000 of that to come directly from Wallace-Bajjali Development Partners and the remaining amount of various funds connected to the two.

Court documents do not make it clear if the remainder of the money has been paid. The records include sworn promises from David Wallace that the funds would be, but no record if they were.

The $450,000 could not be paid until his Joplin and Amarillo projects were well underway, Wallace, said. Given an original deadline of December 31, 2012, to repay the investors, Wallace was able to get that date pushed back to December 31, 2014.

Wallace and Bajjali completed paying their $60,000 fines three days before the City of Joplin hired the firm.

With all of the problems surrounding the former Joplin master developers, it is unlikely the payments to the investors were ever made, but Taylor's report should clear up any doubts.

Wallace's sworn statements, which were revealed in earlier Turner Report posts, made it clear that the former Sugar Land, Texas mayor was skating on the edge during the whole time he was in Joplin.

(From the June 25, 2014, Turner Report)
Expense reimbursements from the City of Joplin and short term line of credit advances are the only things keeping the city's master developer Wallace-Bajjalli Development Partners in a positive cash position.

That assessment of the company's financial situation comes from a sworn statement filed by CEO David Wallace as he explained the reasons why Wallace-Bajjali was not yet able to pay a $450,000 settlement the company reached with a court-appointed receiver to pay back investors who were scammed in a real estate scheme that ended up costing both Wallace and his partner, Costa Bajjali, $60,000 in fines from the Securities and Exchange Commission.

The statement was filed October 24, 2013, in a Texas federal court as Wallace tried successfully to convince the court that he needed more time to pay the company's obligation.

Court files also included a document from the receiver indicating that while he believed Wallace, going along with the extension was about the only chance the investors ever had of seeing the settlement money. The court extended the due date to December 31, 2014.

The settlement was originally supposed to be paid by December 31, 2012, according to court records. It even included a stipulation that Wallace-Bajjali would only have to pay $300,000 if it paid early.

It quickly became apparent that was not going to happen.

In an April 5, 2012, sworn statement, Wallace expressed doubt that his company was even going to land the Joplin job.

"There is no assurance that WBDP will ultimately be selected by the City of Joplin. Indeed, WBDP, development partners and the City Council involved in the selection process have expressed concerns over the negative press coverage and blog environment resulting from groundless accusations and lawsuits against WBDP." Those lawsuits, he noted, included one by disgruntled investors who were not happy with the settlement agreement.

After the City of Joplin selected the Texas company as its master developer, Wallace, in the October 2013 statement, reassured the court that everything was heading in the right direction.

He wrote of Phase One projects, "valued at approximately $112 million (that) have been formally approved by the Joplin Recovery Commission, the necessary land has been acquired, and the projects are expected to break ground in early 2014."

Those projects included the independent senior living facility, a senior assisted living center, two loft-over-retail shopping centers, one at 20th and Main and one at 26th and Main, and the Joplin Public Library/movie theater.

'"WBDP expects to earn approximately $5 million in development from these projects in 2014.

But the Joplin project was not the only source of revenue that Wallace-Bajjali would produce during 2014, Wallace said, indicating that work was progressing on an initial public offering of Wallace-Bajjali stock.

"WBDP has been working diligently towards its goal of becoming a public company," Wallace wrote. "In June 2013, David Wallace, Costa Bajjali and members of the WBDP management team met with Mr. Andrew Hall, managing director of new listings for NASDAQ."

That meeting not only concerned what the company would have to do to get listed on the exchange, but also if the listing could be derailed by the problems with the SEC. They were assured there would be no problems.

Encouraged by this meeting, Wallace said, the company hired a financial advisory firm, TriPoint Capital Advisers in September 2013 "to assist in IPO readiness activities." TriPoint initiated an audit of Wallace-Bajjali, which was scheduled to be completed in spring 2014.

"Notwithstanding the audit," Wallace said, "TriPoint notes that the most important factor
in a successful IPO is the performance of the underlying business, in this case, the success of the Joplin and Amarillo projects. To that end, it is expected that the Joplin and Amarillo projects must be solidly underway, with vertical construction and monthly revenues flowing to WDBP before completion of the offering."

This would put the IPO at mid-2014 or beyond, Wallace said.

The IPO would help WBDP resolve a portion of the settlement, he added. "Once the IPO closes, the equity and debt holders will receive shares."

That timetable for the IPO was dependent on construction being underway in Joplin and Amarillo, something Wallace said would commence in March 2014. "Assuming that vertical construction in those cities commences," he added, the cash would be flowing.

"The development fees anticipated from Joplin and Amarillo are the most significant sources of funds for WBDP in 2014, totaling an estimated $5,019,990 (in Joplin) and $591,666 (in Amarillo)."

Even with the money coming in, Wallace said, it would take months before anything could be put toward the settlement since the company's line of credit "was directly tied to Joplin" and had to be used on Joplin projects.

No money would be available for the settlement until "the fourth quarter of 2014."