Bond Document Reveals Much About Harvest Prep, Some Details About Eric Yusef Mahmoud's Involvement In A Mortgage Fraud...

Creative stock photo, blog post by John Hoff

I will probably have to preface any story about bond issues at Harvest Prep/SEED Academy with this disclaimer: bonds are not one of my areas of knowledge. But there is a story here, (the Star Tribune thinks there is a story, also) and even without expertise in bonds I know that sentences like "The Borrower has previously committed monetary and other defaults on several monetary obligations..." are worrisome.

So I will throw the relevant documents out in the world for public scrutiny and I will highlight what I see as worrisome sections of the documents.

Click here for extensive document on the Harvest Prep bonds.

According to a regular reader of mine who knows a little something about bonds, the following...

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(The bonds) were issued by the City of Minneapolis, as a lease revenue bond.  This is a pass-thru method to use the good name of the City to issue bonds for a group which would not otherwise be recognizeable to investors.  Everyone has heard of the City, Seed and Harvest not so much.  The City is NOT obligated to pay off the bonds (good thing in this case).  They, like most munis, have an OPTIONAL CALL feature:  the issuer can redeem the bonds at a set date prior to maturity, in this case 1-1-13.  Bonds are also callable for various other reasons, including change in tax laws, destruction of building, default, etc.

These bonds are not rated by any rating agency (S&P, Moodys, Fitch) and were to be sold only to "Accredited Investors" which means not to the run-of-the-mill muni buyer looking for tax-free income.  I believe (but may be wrong) that the floor for accredidation is a net worth of 1 million.

Possibly the most interesting thing I found, and I admit I did not go through the entire OS, was found on p.6, "Prior Payment History of the Borrower".  It shows a list of several defaults and late payments to a number of lenders.  This section is followed by several paragraphs covering Mr. Mahmoud's arrest in Georgia.

So, the short version of this is: nothing sinister about the bonds getting called early, necessarily.  Looks to me like this is just a normal call indicating they want to pay off some of their debt ahead of schedule.

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Yes, let's look over that section about Eric Yusef Mahmoud and what it says in regard to mortgage fraud. This is what it says in an extensive section called "Issues Relating To Eric Mahmoud."

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On June 17, 2005, Eric Mahmoud and four other individuals were arrested by Gwinnett County, Georgia for the alleged offense of Residential Mortgage Fraud (the "Offense") in connection with a residential real estate transaction in Atlanta, Georgia in violation of Official Code of Georgia Annotated 16-08-02 (the "Mortgage Fraud Act"). The Arrest Warrant stated that Mr. Mahmoud is accused of "knowingly using or facilitating the use of a deliberate misstatement, misrepresentation, and/or omission, knowing the same to contain a deliberate misstatement, misrepresentation, and/or omission, with the intention that it be relied upon by a mortgage lender during the mortgage lending process contrary to the laws of the State of Georgia."

The arrest warrant further stated that the misstatement, misrepresentation, and/or omission was a fraudulent loan application in an attempt to "close" on the sale of a residential home (The "Atlanta Home") in Atlanta, Georgia.

A conviction under Mortgage Fraud Act is a felony and is punishable by (i) imprisonment of not less than one year and not more than ten years, and (ii) by a fine not to exceed $5,000.

Eric Mahmoud was arrested by Gwinnet County officials along with four other individuals involved in the real estate transaction. The sale price of the Atlanta Home was proposed to be $5.5 million. The assessed value of the Atlanta Home at the time of the proposed sale was $3.9 million. An appraisal was commissioned in connection with the proposed sale of the Atlanta Home and valued the Atlanta home at $5.546 million.

Mr. Mahmoud was not the proposed buyer or the proposed seller of the Atlanta Home and he did not commission the appraisal of the Atlanta Home. However, Eric Mahmoud did introduce the proposed buyer to the proposed seller of the Atlanta Home. 

(JNS blog interjects: Wow, in Atlanta they prosecute for that kind of thing. I wish that kind of thing was prosecuted in Minneapolis)

After the arrest warrant was issued for Eric Mahmoud, an initial hearing was held on June 24, 2005 for this matter. Eric Mahmoud is currently free on bail of $50,000. The case again (sic) Eric Mahmoud has been reviewed by the prosecutor's office and returned to the investigating peace officer for further investigation. As of the date of this Official Statement, the Gwinnet County District Attorney's Office has not indicted Eric Mahmoud with a crime under the Mortgage Fraud Act.
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JNS Blog says: There were apparently developments after the writing of that statement. I continue to dig into this matter. My next blog post on this topic will concern the very interesting things that happened with the IRS.

However, readers can find that stuff in the same document linked above. There's other stuff in that document, too. If Harvest Prep interests you, dig into that document.

I conclude with an editorial comment: HOW ON EARTH were bonds issued that had any connection with Eric Yusef Mahmoud whatsoever? Who was the municipal genius (sarcasm font) who gave the go ahead for Minneapolis to be involved in these bonds associated with this...this...SHADY CHARACTER, Eric Yusef Mahmoud?