No Honor Among Thieves? The Day T.J. Waconia's Owners Sued John Stenroos For Misappropriation Of Funds (Exclusive Documents Tell The Tale)

Flickr.com, Prison Cell

In 2003, when John Stenroos was one of their straw buyers, the owners of TJ Waconia were inside a bubble; an ever-expanding bubble which was our nation's inflated real estate market.

Buying up numerous properties with the help of individuals "lending their credit," the owners of TJ Waconia may have thought of themselves as "investors" and "experts in real estate." Maybe they were fully aware corners were cut, truth was bent out of shape on mortgage applications, but in a rising real estate market what did it matter? Wasn't everybody winning? Especially the "straw buyers?"

Later, when the real estate bubble collapsed and the legal system made its stern judgments, the owers of T.J. Waconia were called something else: Fraudsters. Criminals. Villains. (Click here for an article which summarizes how the scheme worked and puts it in the context of similar mortgage fraud schemes around the nation)

The grassroots organizations who are in charge of neighborhoods had their own emphasis, and their own judgment of T.J. Waconia: Idiots, and the latest in a long line of predatory outsiders who try to pull a profit out of North Minneapolis, then leave the place in a shambles.

Public infamy followed the collapse of the financial scheme...

...including being informally named the "No. 1 Civic Villain" in Minneapolis. Currently, Thomas Balko and Jon Helgason, the owners of T.J. Waconia, are awaiting sentencing. It is expected some time in December and at least one group is looking forward to it with chop-smacking anticipation: a group of self-described "victims," one of which runs the "TJ Waconia Victims" blog.

A Paper Window Into The Heart Of The Scheme

In 2003, one of the partners--who now considers himself a victim--was John Stenroos, currently a real estate agent for "IPG." (Investment property guys)

An unnamed, anonymous source--so anonymous it may be I don't know his/her name myself--provided a small bundle of documents pertaining to a lawsuit by TJ2 LLC (one of the corporate incarnations of Balko and Helgason) against John Stenroos alleging, inter alia, misappropriation of Section 8 rent monies paid by tenants.

The documents consist of an unsigned lawsuit settlement agreement, a cover letter from the law firm of Rider Bennet making reference to the pending agreement plus attempting to resolve "outstanding matters," (like who gets the Toyota) plus an earlier draft of the settlement agreement which varies in some minor aspects. The details of the paperwork would remind anybody--even happy single people--of a divorce settlement, complete with bickering about unpaid utility bills and who rightfully owns the truck.

In an email, John Stenroos confirmed the basic veracity of the documents--though he said he didn't know if signed copies had ever been filed with the court--and provided some other details, including the fact he had attempted to file a complaint against Balko/Helgason with the Commerce Department in 2003, to no avail.

Stenroos said, "They hit me at a time when I did not have money. You see, we were no use to them any more, my wife and I. We had no more credit for them to abuse, so they hit us with this lawsuit to remove us. In hindsight, it was a blessing."

An Early Victim? Or A Falling Out Among Theives?

Stenroos claims to be a victim. By their very nature, the documents lean heavily toward the version of events told by TJ2, LLC. The dispute can be easily summarized: TJ2 said Stenroos was grabbing up money and property which rightfully belonged to TJ2, not Stenroos, including Section 8 rent checks. TJ2 wanted its money, its property, and Stenroos out of the picture. A settlement agreement was worked out and Stenroos signed it.

That could have been the end of it--except for TJ2, LLC and Stenroos recovering financially and psychologically from the impact of having done business with each other--except for how infamous TJ Waconia later became. An ugly little falling out among participants in a local real estate venture now takes on aspects of an informative window into an earlier era--infamous only in retrospect--a kind of "Rosetta Stone" which might reveal all kinds of things:

How culpable were some of the "victims" in the scheme? How did the scheme work; not the broad strokes, which are known well enough, but its nitty gritty details? And is all the money really gone? Or did somebody like (the reportedly tight-lipped) Jon Helgason sock a pile of dough away somewhere, cooly calculating and waiting for the day he could emerge from a couple years in a white collar prison and then spend the rest of his post-incarceration life sipping margaritas in Bermuda, living off the proceeds?

The documents don't answer any of these questions, definitively, in particular the very last question. But much is revealed.

We Have Now Exchanged The Quitclaim Deeds And Property Files

On November 19, 2003, the day Attorney Patrick A. Reinken (representing TJ2 LLC) wrote a letter to Todd A. Wind (representing Stenroos) Reinken referenced "the Settlement Agreement entered into by the parties." His stated goal in the letter was to identify "remaining issues" and "respond...to inquiries about outstanding matters." He proceeded to list what these "outstanding matters were."

* They were trying to transfer properties. Stenroos was to receive 3 properties, TJ2 would get 14. All the properties were listed, and were in cities ranging from Woodbury to Brooklyn Park, with 3 in Minneapolis which would all remain in the hands of TJ2. (The "List of 17" can be found as part of this posting, click here)

* They were trying to find and divide up "Section 8 and rent payments." Reinken is forced to go into great detail in this section, and the reader is left to conclude John Stenroos basically cashed any rent check he could get his hands on, whether it legally belonged to him or not. Stenroos specifically denies this in an email, saying, "Section 8 claims were as bogus as the rest of their filing. But hey, it worked and got us out of the picture...again, a HUGE blessing (in hindsight)."

But the accusations of misappropriated rents are quite detailed, and far too specific to be simply dismissed by Stenroos by the single word "bogus."

Reinken alludes to confirmation that "the Stenrooses cashed" a check for $6,000 which represented "Section 8 amounts for the McLeod property, for the period from December 2002 to May 2003." These monies were supposedly "owed to TJ2 under the Settlement Agreement."

The Stenroos attorney, Todd Wind, had apparently suggested an "offset" of monies, taking into account security deposits and association dues on the three properties Stenroos got under the agreement. This money added up to $2,261, which "would leave $3,739 of that amount still owing TJ2."

In careful detail, Reinken then proceeded to list the rent monies which "would be owing to TJ2 under the Settlement Agreement" but were (according to TJ2s records) still outstanding amounts.

1.) $1,000 in rent at 11425 Elmwood Ave., Champlin, MN for the month of June 2002. Reinken states that "a copy of the check to Mr. Stenroos is enclosed" which the tenant had paid "directly to Mr. Stenroos."

2.) Section 8 checks, each for $1,030, for a property at 1013 Dayton River Road, Champlin, Minnesota. Reinken states that "Metro HRA" could confirm 3 such checks had been cashed by Stenroos. Reinken was still trying to clear up the fate of 5 of the payments.

3.) Section 8 checks, each for $1,220, for a period of four months. The payments "would have gone to the Stenrooses" and Reinken states he has been making inquiries. The reader gets the sense "Metro HRA" wasn't particularly forthcoming and/or efficient when it came to telling Reinken whether particular rent checks had been cashed.

4.) Missing "Rent and Section 8 payments" for 2527 West 87 1/2 Street, Bloomington, Minnesota. Having very little specific proof of anything being cashed or even paid, the lawyer for TJ2 asks for the "assistance" of Mr. Stenroos to clear up the mystery surrounding what is referred to--in a kind of common real estate shorthand--as "the 87 1/2 property."

* Completing repair work on one property, communicating with the court and, by the way, dude where's my truck?

The letter concludes with a laundry list of things to be done, including confirming that one of the properties Stenroos was allowed to keep--4016 80th Ave. N., Brooklyn Park, Minnesota--had passed inspection. Stenroos would not be allowed to keep a Toyota pick-up truck, "purchased and held for the company's business but titled in Mr. Stenroos name." Reinken says, dispassionatey, "Please let me know when TJ2 can expect transfer of title of the truck."

Reinken concludes by saying that, "(g)iven the exchange of the quitclaim deeds and the property files," that "dismissal papers" can now be submitted to the clerk of the court, which had called and inquired about the matter the previous day. (November 18, 2003) The letter was cc'd to "Sam Ashkar," whose name has come up as an associate of Thomas Balko and Jon Helgason.

Therefore, It Is Hereby Agreed As Follows

According to the unsigned, "over the transom" draft of the Settlement Agreement And Release, TJ2 was a limited liability company formed in August, 2001 "for the purpose of acquiring and renovating real estate as an investment for the members of TJ2." John Stenroos was a member, along with Thomas Balko and John Helgason. It appears the "T" in "TJ2" stood for "Tom" or "Thomas," while "J2" stood for the two Johns: John Stenroos and John Helgason. Stenroos seems to confirm this in his email by saying "we thought we were partners" but admits "plain and simple, my wife and I were straw buyers."

Information on file with the Minnesota Secretary of State's Office--and available on the internet--shows the limited liability corporation "TJ2 LLC" came into existence on August 7, 2001. That entity is now inactive. The corporation known as "TJ Waconia, Inc." came into being on June 5, 2003 several months before the claims with Stenroos were settled.

The lawsuit was filed in Hennepin County District Court on May 1, 2003, Court File No. 03-7426 and sought "monetary damages and injunctive relief against Stenroos, including declarations of rights, responsibilities, etc., plus a declaration that Stenroos was "expelled from TJ2" because of misappropriation of funds. Yet the remaining partners--Helgason and Balko--ultimately agreed to pay Stenroos' legal bills to the tune of $4,000.

It's only mildly amusing that, according to the unsigned release, the check was to be made out directly to the law firm of Fredrikson and Byron, PA, and not directly to John Stenroos. In the document, Stenroos agreed to withdraw from TJ2 and make no claims against TJ2. Stenroos had to give up the "two-wheel drive, Toyota pick-up truck" which was "purchased and held for Company business but presently titled in Stenroos' name."

The properties were to be divided up; with Stenroos (and, presumably, his wife, Claire) taking three of them and Balko/Helgason taking the rest. The parties agreed to use their best efforts to "effecuate" this process with the titles and financing of the properties, at least one of which had a "second mortgage."

As to rent monies, the date of July 1, 2003 became very important as concerned the 17 properties at issue. Rent monies paid prior to that date were supposed to arrive in the hands of whoever ultimately got ownership of the house under the settlement. This is apparently why Attorney Reinken had to work so hard in November, 2003 to find where the rent checks went: because "Tom and Jon" were getting the lion's share of the houses, yet many rent checks had been in the name of Stenroos, who had been cashing the checks.

What Caused The Rift?

Why was Stenroos cashing all those checks? Did he sincerely believe the rents and Section 8 monies were his under the "partnership" due to some kind of misunderstanding or deception? Did Stenroos feel betrayed and was simply grabbing for whatever resources he could control as his "partnership" with Tom and Jon disintegrated? Was he addicted to what might be called "high living?"

Legally, the answers should--in theory--be deeply buried: if the settlement document was signed, it contained a "Non-Disparagement" clause which said the parties would "not disparage or defame" each other or make "any comments" concerning the "employment" of Stenroos by the people he once referred to as "partners." Furthermore, "Stenroos may only testify in a court or other proceeding against TJ2 to the extent he is compelled to do so by a lawful subpoena."

This provision does not seem to weigh hard on the mind of Mr. Stenroos, who wrote only a brief email but managed to pack in plenty of disparagement, as follows:

* "It took my wife and I many years...to recover from that fiasco."

* "That (sic) fact they are in trouble now is true karma. Yes my wife and I smile at that daily. There really is a god. Although we are Buddhists."

* "No, the FBI had no interest in what my wife and I had to say. What was done to us was too little too long ago for them. Oh well, it would have been nice to know we had some part in bringing these two down, but the fact somebody did is good."

* "I cannot sue them, it's in the agreement although, again, it would be nice to know I had some part in them going to jail."

* "I will cheer when they go to jail. I do know they will be back. Might be on a smaller level and in a different field, but they will be back."

Stenroos may calculate--quite reasonably--that Thomas Balko and Jon Helgason are in no position to try to enforce the "non-disparagement clause" in the 2003 settlement. The defamation clause worked both ways, however.

Not only did TJ2 agree not to "defame" or "disparage" Stenroos (with Stenroos agreeing the same) but it was agreed that "all inquiries from Strenroos prospective employers shall be directed to Sam Ashkar...and that Sam Ashkar will inform the individual inquiring that it is the policy of TJ2 to confirm only the dates of employment and the position last held of former employees."

Thus the self-described "partner" who ultimately saw himself as a "straw man" was relegated to the role of "former employee."

What Other Documents Exist?

Stenroos claims to have materials but says "what materials I have will stay locked down."

Where To Go From Here?

Whether Stenroos was a victim or quite complicit in the shady dealing of his old "partners," Stenroos' sentiment rings true: how lucky he is not to be standing in the shoes of Thomas Balko and John Helgason, now staring down an unknown amount of prison time.

The tone of the documents is, in retrospect, a relic of another era: a time when plenty of money could be made turning overpriced houses into Section 8 rentals, if only the undesired partner could be ejected, if only the lion's share of properties could remain in the hands of "Tom and Jon," if only all the missing rent checks could be accounted for. Money could be thrown at the old partner's lawyer. Anything, anything, so long as the unwanted partner was out of the picture and business could go forward as usual, because the market was going up, up, up.

Did their negative experience with Stenroos change the dealings of "Tom and Jon" in any fundamental way? Did the owners of T.J. Waconia decide, for example, the "straw men" needed to know good and plain they were NOT partners, (good grief!) and should be treated accordingly? Was there a new emphasis on making sure rent checks arrived made out to the corporate entity, and not the names of the straw people, so the wrong people--straw men acting like owners--wouldn't have opportunities to cash those checks?

It's hard to believe the messy, ugly lawsuit with Stenroos didn't alter their business practices.

Most interesting of all is the final warning of Stenroos: just wait and see, TJ Waconia will be back. This is not the end of "Tom and Jon." They will buy, sell, and rent property. They will attempt to build a real estate empire all over again, just you watch.

Nobody else seems to be saying this: not law enforcement, politicians, bloggers, certainly not the victims. And yet Stenroos, the former "partner," is sounding the warning:

This is not the end for TJ Waconia.