|Mugshot of Daniel Lee Gelb|
(Public record mugshot, thus public domain)
GUEST POST BY CAMDEN CANARY
Let me warn you right now: this post is going to blow your mind, and probably not in a good way. Go grab some ibuprofen, trust me.
In 2008, the Minnesota business community’s jaws simultaneously dropped as Tom Petters’ home and the offices of Petters Group Worldwide were raided by federal agents. Fast forward to 2010, and Petters was sentenced to 50 years in prison for turning the company into a $3.65 billion Ponzi scheme.
It probably won’t surprise you to hear that there’s a connection to a big North Minneapolis landlord: Daniel Gelb and Danlen Properties, LLC. Even worse, Daniel Gelb appears to have connections to swindler Mark Erjavec and landlord Lenny Frolov, too.
The Gelb-Petters Connection
After Petters was sentenced, there still remained the task of finding co-conspirators or Ponzi scheme participants to recover funds for restitution to victims. That monumentally challenging task was given to a court-appointed trustee, who found his way to Daniel L. Gelb and Plaza I, Inc., both having the address of 9617 Oak Ridge Trail in Minnetonka...
...In September 2010, the trustee brought a bankruptcy adversary action against Gelb and Plaza I, claiming they were contributors to, or benefactors of, Petters’ Ponzi scheme; alleging they transferred money into Petters’ company in return for a promissory note and return distributions representing "false profits."
The complaint’s causes of action included a demand for accounting, fraudulent transfers, unjust enrichment and equitable disgorgement, and disallowance, demanding a return of $654,000 with interest to the estate:
“Pursuant to the fraudulent mechanisms [of the Ponzi scheme], all of which were designed to funnel funds from [Gelb and Plaza I] through [Petters Company] and back to [Gelb and Plaza I] at excessive rates of return, [Gelb and Plaza I] engaged in at least 18 separate note transactions with [Petters Company] in a principal sum of at least $550,000 … The “interest rates” that [Petters Company] paid to [Gelb and Plaza I], utilizing funds received from Petters through [Petters Company], generally ranged from 23.23% to 102.86% on an annualized basis … [Petters Company] made payments or other transfers totaling at least $654,000 to or for the benefit of [Gelb and Plaza I] … every transaction entered into by [Gelb and Plaza I] to invest in [Petters Company] and the Ponzi scheme, was based upon wholly fraudulent and fabricated financial transactions.”Now, Petters’ mess is incredibly large — $3.65 billion, mind you — so this litigation is moving rather slowly. In fact, there’s a special order from Chief Bankruptcy Judge Gregory Kishel governing the litigation process in over 200 adversary proceedings commenced by the trustee.
About five months after the adversary case was filed, Gelb and Plaza I retained an attorney and filed an Answer. As one of the defenses, Gelb’s attorney claims that since the transactions occurred between June 1999 and June 2011, the statute of limitations (which is either two or six years, depending on the issue at hand) has expired. However, Gelb’s attorney recognizes immediately that the trustee would argue that the statute of limitations would be tolled (paused) since the fraud wasn’t realized until 2008. Gelb’s attorney goes on to argue that Gelb had “no cause or reason to believe that the transactions in which they participated with the Petters Entities were in any way irregular or anything out of the ordinary course.”
There was apparently no movement in the matter until November 2013, when Gelb’s attorney filed requesting early mediation. We have no insight into what’s happening behind the scenes, but there’s a great deal of movement happening in the Petters bankruptcy case as a whole.
I'll be watching that case to see how it progresses. But suffice to say, anyone having a connection to Tom Petters in a role other than ‘victim’ should give you pause.
The Gelb-Frolov Connection (and a whole lot more)
So, where’s the North Minneapolis connection? Well, a company named Danlen Properties, LLC has a principal executive office address of 9617 Oak Ridge Trail in Minnetonka, and the manager’s name is identified in Minnesota Secretary of State records as being Daniel Gelb. The same guy at the same address.
Danlen Properties, LLC is believed to own 31 properties in North Minneapolis, but they all list a taxpayer address of 7040 Lakeland Ave N #112 in Brooklyn Park. That address appears to be an apartment building, but searches for the address lead me to Lenny Frolov of Resource Realty Group.
Resource Realty Group, Inc. shares the Lakeland Ave N address, lists Lenny Frolov as the CEO, and lists an additional registered office address of 3539 Douglas Drv in Crystal. Oh sh** — that address looks frighteningly familiar. And that's because it's the address used as a taxpayer address for a ton of other properties bearing the names Good Domus LLC (Brad Birnberg, 510 Evergreen Lane, Plymouth) and Herman Capital Partners (Ross Herman, 3539 Douglas Dr N, Crystal). Yikes, we're gonna need a follow-up here.
Frolov is a licensed real estate broker, apparently listing employers First Housing LLC and Resource Realty Group, and a business location address of 15821 Hedgehog St NW, Ramsey, MN 55303 — and JNS *just* posted about him and Herman Capital Partners last week.
First Housing, LLC shares the Lakeland address and Frolov's name, but adds another address to the list: 13570 Grove Drv #107 in Maple Grove. This is roughly the point that I started freaking out because 13570 Grove Drive is a UPS Store in Maple Grove, and there's several North Minneapolis properties with that address (and varying box numbers) listed in taxpayer information:
Innovative Resource Group, Inc. uses 13570 Grove Dr #262, and lists Alan Miller as the CEO. That company owns 406 Knox Ave N and 3936 42nd Ave S. I have a lot of information on who this could be, but I'm withholding it until I get some additional documentation back.
Let's move onto box #203: Adobe Property Management LLC, which owns 4818 Fremont Ave N. That company's registered agent is David Miller. Oh look, a familiar last name!
Another company sharing as a taxpayer address the posh office that is UPS Store box #262 is Global Creative Investments Inc., which is registered to a Maria Riley, CEO, at 9174 Olive Lane N in Maple Grove. Global Creative Investments, Inc. owns 3714 Queen Ave N, 3657 Logan Ave N, and 3410 Logan Ave N.
Nick C. Riley and Maria R. Riley use box #233, and they own 1418 Upton Ave N. Maria is of Global Creative Investments, so we can just bucket those together. Nick and Maria both appear as rental license contacts on homes in North Minneapolis.
Susan M. Spatafore, an individual, uses box #240, and she owns 2206 4th St N. I don't know much else about her, except that her rental license contact information provides her address as 7601 Penn Av S in Richfield, which appears to be Best Buy's headquarters. A profile online indicates she might be the Product Manager of “Home Life” for Best Buy, but I'm not sure that gives her permission to use Best Buy's corporate address in rental license applications.
Okay, I need to get back to Frolov...
That same Lakeland Ave N address and unit number show additional properties owned by Lenny Frolov and some more properties owned by Allen Homes LLC. That company is registered with the Secretary of State at the same address, with Lenny Frolov listed as the manager, and Alex Frolov listed as the registered agent. There’s plenty more to say about Lenny Frolov, including his own connection to Mark Erjavec, but I have to save that for later to stay focused on Gelb’s connections. Suffice to say, I’m concerned about the depth of this web...
Another property (1348 Russell Ave N) has Frolov’s name and address as taxpayer, but at one point listed “Hawthorne Holdings LLC” as the owner. That company lists the manager as “John Wall” at 2100 Ford Parkway in St. Paul. Now what’s interesting here is that 2100 Ford Parkway is a Highland Bank branch location, where John Wall appears to work. But Highland Bank doesn’t own the property, Hawthorne Holdings LLC does — which John Wall apparently manages as an individual. That certainly requires further investigation, and could be a similar situation to the Best Buy address.
The Gelb-Erjavec Connection
It was reported in the Star Tribune that Al Franken canceled a fundraiser with Mark Erjavec quickly after he learned of Erjavec’s history:
"In 1997, Erjavec was convicted of theft by swindle and sentenced to 13 months in prison in St. Louis County. In a separate incident, a Catholic priest from Chisholm said he invested $10,000 of his own and the parish's finances in a certificate of deposit that turned out to be forged. "It was a Ponzi scheme. He would pay off people with other people's money," Erjavec's uncle, Frank Erjavec, said … In May of this year, the IRS filed a tax lien against Erjavec for $14,258. In 2007, a $137,821 judgment was issued against him in Hennepin County. He has been sued for breach of contract and consumer fraud and for violating federal truth in lending laws. A trademark infringement suit against him from General Electric ended in a permanent injunction.”The following is all alleged and purported based on the statements made and my interpretations of allegations made in a complaint:
In the midst of Erjavec’s bankruptcy, a man brought a Complaint for Determination of Nondischargeability of a Debt. The situation at hand is rather complicated, so bear with me. The Complaint claims that in 2007, Gemini Equity Group LLC entered into a promissory note with S and J Homes of Minnesota, LLC to finance the purchase of a property in Lakeville. Erjavec was hired as a consultant for Gemini, and he acted as a manager and signatory for Gemini when he renegotiated the terms of that original promissory note.
Paul Sharp, who brought the Complaint, claims he and Erjavec (acting as manager of Gemini) entered into a “Loan Participation Agreement” whereby Sharp and Gemini agreed to participate jointly in the collection of the S&J note. That is, Sharp would receive 56.7% ownership in the note and mortgage, while Gemini would retain 43.3%. As consideration for the partial assignment of the note, Sharp allegedly gave Erjavec title to a $160,000 motor home / recreational vehicle. Erjavec allegedly never filed or recorded the documentation memorializing the exact terms of the agreement.
Sharp goes on to state that his motor home was owned by his company Three Lions, LLC, a Montana company, and that Erjavec (without any permission) prepared a bill of sale, selling the motor home from Three Lions, LLC to Tricolor Heron, LLC, which is a shell company Erjavec allegedly created and registered at a UPS Store mailbox.
Now here comes Dan Gelb. Gelb’s company Plaza I, LLC allegedly jointly with Gemini sent a letter to S&J stating that future payments should be made to Plaza I — there’s no additional information on how that relationship was formed. A couple weeks later, Erjavec allegedly delivered a document titled “Binding Disbursement Memo” to Gemini’s owner Dmitry B. Mogilyansky stating that Ronald Prokosch had agreed to purchase the note and mortgage for $262,000, and the funds were to be sent to Gemini. Sharp claims Mr. Prokosch denies having seen the document or signed it.
Days later, the owner of Gemini and Erjavec enter into an assignment agreement with Gelb’s company Plaza I for the same S&J note Sharp claims was partially assigned to him. Now, apparently in exchange for the transfer of the S&J note and a new mortgage against a Woodbury property, another company named Mesaba Finance-Blue Ridge Group, LLC and its owner Ryan Oberlander (which strangely has the same address as Erjavec’s shell company) allegedly received financing of $408,000. Erjavec allegedly caused the loan proceeds from Plaza I to be paid on behalf of Mesaba to purchase that Woodbury property for $525,000.
Sharp claims the collateral assignment documentation falsely represented that Gemini as the sole holder and owner of the S&J note and mortgage, falsely claiming that Gemini owned 100% interest in the S&J note. Now back to that RV: Erjavec allegedly formed a company named Three Lions, LLC, which was the exact same name as Sharp’s Montana company, and used a UPS Store box yet again.
The Complaint goes on to track that Erjavec (on behalf of Mesaba) allegedly sold the Woodbury property in a like-kind exchange for another property at 266 Summit Ave, which Sharp claims had a valuation of approximately $3 million, which Erjavec used as his primary residence. Apparently Gelb’s company Plaza I received proceeds of over $211k, but Sharp didn’t receive anything.
More About Daniel Gelb
|Screenshot of Daniel Gelb Meetup event|
(Screenshot reproduced for fair use commentary and criticism)
A Twin Cities “Affluence in Real Estate Investing” Meetup group had an event with Daniel Gelb on November 10, 2011, which apparently covered the topics of hard money lending. Gelb’s “qualifications” were listed as first stating that he’s an “investment expert” with “diversified investments in real estate, bar/restaurants, nightclubs, hard-money lending, pawn shops, and medical services.” It goes on:
"Daniel L. Gelb grew up in Highland Park in St. Paul, MN. He has an undergraduate degree from the Wharton School of Business at the University of Pennsylvania. He has a MBA from Columbia Business School with majors in finance and real estate. After working for a couple of years in New York in investment banking he joined Piper Jaffray in Minneapolis where he was a Vice President in investment banking in the Mergers & Acquisitions area. In 1998 he left to pursue his entrepreneurial passion and manage his investments full time. He lives with his wife and their three sons in Minnetonka, MN.”Amusingly, Andrey Sokurec of Proton Investments apparently held an event with the same group just months later.
The Rake profiled Daniel Gelb's involvement in Zeno Cafe at 2919 Hennepin Ave S in Uptown in 2007:
"Back when Zeno opened, its New York owners — two attorneys, no less — thought they’d make millions bringing their ultra-hip wine bar-sandwich shop-coffeehouse concept to Minneapolis. And they might have, if they’d stuck it out with their flagship storefront in Uptown for more than about 30 seconds. Instead, they rushed to open a second store in a risky Hennepin Avenue location and made plans to expand to the suburbs. By 2006, their tiny empire came crashing down. Enter Daniel Gelb, president of Plaza 1 [sic], Inc. He and his partners were smart. They bought the law guys out, closed the Uptown Zeno briefly and re-opened it under the same name some weeks later."Well, Gelb allegedly scored a criminal conviction for "malicious punishment of a child" in January 2006, and shortly thereafter the Minneapolis City Council put conditions on the renewal of a liquor license at Zeno:
"a. Daniel Gelb agrees that he will not actively participate in the day to day management activities of Zeno. b. Daniel Gelb agrees to continue to obey the orders of the Hennepin County District Court concerning his probation for his conviction. c. Daniel Gelb agrees to timely inform the Licenses & Consumer Services Division when he has completed any requirements of his probation and to promptly provide proof of completion of such activities to the Licenses Division. d. Daniel Gelb agrees that the above conditions may be a condition of approval of the Zeno license and become a condition of approval of any other new or renewed license issued to any business entity of which he is a shareholder during the period of his probation. e. final inspection and compliance with all provisions of applicable codes and ordinances."Gelb is also 50% shareholder of Eat Street Buddha Kitchen Lounge, which went into Azia's old space on Nicollet Ave in South Minneapolis. The liquor license application lists the other shareholder as Michael J. Tupa, who owns the Wild Bill's Sports Saloon chain.
There’s also a 2003 lawsuit involving Gelb in some capacity, relating to a trademark infringement and bankruptcy filing for a Mr. Steve Fahrner over the domain name “StemsAndVines.com” — I’m unclear if Gelb had involvement in the floral industry, but it just goes to show the number of things he’s allegedly and possibly involved in.
Doing a few more searches, I found Gelb also owns a property as "Quality Residences LLC" (comes back to his name) at his home address, in addition to several under his "Plaza I Inc" moniker. One additional address shows up under Plaza I, Inc: 2284 W 7th St in St. Paul. This appears to be linked to Trans-City Investments and Howard H. Gelb. The name Troy Kipper appeared on two homes, and Real Dream Enterprises Inc popped up as well. More on these entities in a future post, along with a possible flurry of holdings in Tennessee of all places.
When will the web of companies and names and obscure connections end? I have a feeling we haven't seen the half of it, and a cursory look at some of the rental license contacts (related or not) yield names I recognize from various previous blog posts or even criminal charges. More soon!