The Gazette by Justin Zaremba - December 27, 2010
Established in 1999 by the principal members of Gershon Alexander, Harold Cook III and Bruce Bohuny, the Puddingstone Group - which alternately lists its offices as either 892 Belmont Ave. or 886 Belmont Ave. in North Haledon - provides a wide range of real estate services from site evaluation and asset management to development and construction administration, according to its website. In geology, puddingstone is a sedimentary rock composed of different, irregular-sized grains and pebbles held together by a finer matrix, usually formed from quartz sand. Similar to their geological counterpart, each member of the Puddingstone Group arrives to the organization from a different background with a specific field of expertise.
Alexander, of Spring Valley, N.Y., is a real estate developer with business ties throughout New Jersey and New York. According to court records, Alexander is responsible for loan origination and loan underwriting for the Puddingstone Group. State business records indicate Alexander is named as the managing member in the majority of Puddingstone's subsidiary limited liability corporations. Cook, of North Haledon, is a senior partner of the law firm Perconti and Cook and serves as a municipal judge in Haledon, North Haledon and Ringwood and as magistrate in Wanaque. His combined salary for his positions as municipal judge and magistrate in these towns is $84,914 for 2010 and he currently pays into the state pension system. Since 1995, he has served as the attorney for Wyckoff's Board of Adjustment, and, in 2010, received a salary of $8,982. In addition to his municipal positions, Cook is also the director of Jefferson Loan Company, an auto loan lender, and is the former chairman of Wayne Savings Bancorp. In 1998, Cook was "instrumental" in the sale of Wayne Savings Bancorp to Valley National Bank, according to the Puddingstone website. Cook received a seat on the board of directors of Valley National Bank following the sale. Bohuny, of Franklin Lakes and Jupiter, Fla., founded Lakeland Bancorp, Inc. with John Fredericks and Robert Nicholson in 1968. Bohuny served as secretary-director since the bank's inception and later served as vice chairman until he retired at the age of 75 due to the bank's mandatory age retirement. He served as president of Brooks Limited - a land development company based in Wyckoff - until March 2001 and then as president of the Chelsea Group, LLC - also, a land development company - from April 2001 to the present. Since 1989, he has served as a director of the Hackensack University Medical Center. Bohuny filed for Chapter 11 bankruptcy in the Southern District of Florida this past July and, as a result, he was dismissed as a party in several cases of alleged loan default in New Jersey. Cook declined comment with regard to the Puddingstone Group, Jefferson Loan Company and associated litigation. Alexander also declined comment. Bohuny could not be reached for comment at his residences in Franklin Lakes or Florida. "I cannot discuss the Puddingstone Group because there is pending litigation," Cook said, later adding, "I have no comment because there is pending litigation."
Business operation and loan defaults
Lawsuits filed in Bergen, Essex, Hudson, Mercer, Middlesex and Monmouth counties by various regional banks including but not limited to Atlantic Stewardship Bank, Investor Savings Bank, Greater Community Bank, Sun National Bank Credit Facility, TD Bank and Sovereign Bank detail a spiral of legal and monetary troubles for the Puddingstone Group and its principal members including allegations of more than $14 million in defaulted loan obligations to the banks following a lack of return on real estate investments. Puddingstone's subsidiary funding companies secured loans or lines of credit with numerous regional banks in New Jersey and New York including Atlantic Stewardship Bank, Sussex Bank, Investor Savings Bank, Greater Community Bank, Columbia Bank, Union Center National Bank, Lakeland Bank, Sovereign Bank, Sun National Bank Credit Facility, Saddle River Valley Bank and TD Bank, according to court records. The Puddingstone Group's individual members and subsidiary companies are alleged to have defaulted on more than $14 million in loans or lines of credit despite repeated extensions of the "maturity" of those various loans, according to court records. A loan's maturity is the length of time an individual has to repay a loan. Interest rates for these loans ranged as low as a variable rate of 1.5 percent for a $1.5 million loan with TD Bank to 6.25 percent with a $2.4 million loan with Investor Savings Bank. In their responses to the complaints filed against them in Bergen, Essex, Hudson, Mercer, Middlesex and Monmouth counties, the members of the Puddingstone Group have not disputed receiving loans from these various banks, but have disputed other facts in those cases. They have filed counterclaims in several of these cases including allegations that the lawsuits were frivolous, that lending banks refused to provide the basis of the loan default, that lending banks disclosed financial information to outside parties, that lending banks did not allow Puddingstone Group members to liquidate the collateral for their loans in "a commercially reasonable manner," and that the banks did not provide adequate time to repay the loan via redevelopment of the properties associated with the loans. Cases filed against the principal members of the Puddingstone Group in Hunterdon, Morris, Sussex and Union were not available for review prior to press time.
In two cases in Mercer County, the court issued summary judgments in September and October against Cook, Alexander, Bohuny, and their subsidiary companies, ordering them to repay Sovereign Bank $1 million and $400,000 for two loans, respectively. According to court records filed in Bergen, Essex, Middlesex and Passaic counties, the Puddingstone Group operates on several levels of business with subsidiary funding companies securing loans or lines of credit from regional banks and then lending those funds out - at a higher interest rate - to potential developers who would then renovate and "flip" various properties to retail purchasers. Puddingstone would then retain the difference in interest as profit and, in some cases, develop the properties independently. Court records in Essex County state that "[the] loans [financed by Puddingstone] are usually for a term of a maximum of one year, and are secured by an absolute and unconditional assignment of the borrower's limited liability company interest in the company that purchases or holds title to the one- to four-family residential dwelling. The borrower further executes an agreement not to encumber which is recorded against the property along with an assignment of limited liability company interest so that when a borrower attempts to refinance or sell the said one- to four-family residential dwelling, a title search will reveal Puddingstone Funding's loan and the prohibition against a sale or refinancing or even secondary financing until the Puddingstone Funding loan is satisfied in full."
In an expansive case filed by Puddingstone against another group of developers - Sholom and Charlene Moskowitz, Wolf Werceberger, and their associated companies - the Puddingstone Group issued approximately 50 loans to the Moskowitz group from August 2000 through 2008. In total, the Moskowitz Group was found liable for more than $2.7 million in defaulted loans to the Puddingstone Group, according to the settlement agreement. Additionally, court records indicate the Moskowitz group had also sold properties despite failing to disclose that the properties could not be refinanced or sold without repaying the loans owed to Puddingstone. The Moskowitzs' and Werceberger were unavailable for comment. In filed court records, the Moskowitz Group indicated that "a soft real estate market" contributed to their inability to renovate and sell properties. Incidentally, this was not the first time Sholom Moskowitz came under scrutiny for his real estate investments. According to a report from the U.S. Department of Housing and Urban Development (HUD), Moskowitz and Trena Hill, a former loan officer with Community Home Mortgage Company, pleaded guilty in 2005 to "tax evasion, bank fraud, false statements to a banking institution and/or conspiracy to submit false statements to a financial institution." According to the HUD report, Moskowitz and Hill pleaded guilty to preparing false loan applications, appraisals, employment verifications, and gift letters to assist unqualified individuals in obtaining nine mortgages which were insured by the Federal Housing Administration (FHA). According to HUD, four FHA-insured mortgages defaulted as result and HUD lost $201,244. In 2006, Moskowitz was sentenced to six months home confinement and five years probation and ordered to pay HUD $201,244 in restitution. Hill was also sentenced to five years probation and ordered to pay HUD $91,556 in restitution.
According to court records in several counties, Puddingstone Funding companies only issued loans to potential developers who agreed to assign over their interest in a limited liability company as collateral. While this is a fairly standard practice for non-conventional lenders such as the Puddingstone Funding companies, many financial institutions award loans based not on the assets of the loan recipient but on their ability to repay a loan. In a lawsuit filed in Essex County by the Puddingstone Group, the group alleges that Arraheem Giles was issued a $200,000 loan in the form of a "construction note" in May of 2007 for the purpose of acquiring and renovating property at 480 Avon Ave. in Newark. According to Puddingstone's complaint, Giles later assigned ownership of the property to his company, Come Home Bail Bondsman, LLC, and, per the loan agreement, assigned his membership interest in the company - and, consequently, the assets held by the company - to the Puddingstone Group as collateral. According to the complaint, Giles defaulted on the loan and, over three years, accrued $119,736.80 in interest. Based on the figures presented in Puddingstone's complaint, the average interest rate for the three years Giles failed to repay the loan principal is 17 percent. Including fees and accrued interest, Giles allegedly owes the Puddingstone Group a total of $326,066.84 with post-default interest accruing at 24 percent annually. Giles has not filed an answer to the complaint at present and was unavailable for comment.
In a Hudson County case unrelated to the Puddingstone Group, a six-person jury unanimously concluded earlier this year that Cook and Sean Caposella breached their fiduciary duty to investors with regard to their loan company, Jefferson Loan Company, by failing to inform investors that the company was insolvent - unable to pay off its debts - when they rolled over their investment. The suit was brought by former investors, Charles and Carol Sachs, in 2008 to collect five debentures - forms of pooled debt on which investors are paid a stated rate of interest - in the principal amount of $71,000. In their suit, the Sachs alleged claims of common law fraud and violations of the New Jersey Uniform Securities Law by Cook, Caposella and Jefferson Loan Company. The Sachs also claimed that Jefferson Loan Company breached its contract with investors and that Cook and Caposella breached their fiduciary duties as directors of the company. In addition to the unanimous verdict against Cook and Caposella, the jury determined by a vote of 5-1 that Jefferson Loan Company breached its contract with investors to redeem their debentures either before or at maturity, which resulted in damages to the Sachs. The jury, however, did not find Jefferson Loan Company, Cook or Caposella liable for common law fraud or violations of the New Jersey Uniform Securities Law. According to court records, Jefferson Loan Company is a licensed lender that financed auto and other consumer loans through monies received from debentures issued to its principals, relatives and friends and a line of credit with Valley National Bank. Cook was a 60 percent shareholder, president and director of Jefferson Loan, while Caposella owned 40 percent of Jefferson Loan's shares and served as director and at various times as secretary or executive vice president. Court proceedings indicate debentures were typically for three years and would usually be rolled over and renewed for another three-year period. Additionally, Jefferson Loan Company agreed to allow investors to cash in their debentures at any time without penalty. Testimony provided by Caposella indicates that the Sachs renewed their debentures and collected more than $130,000 in interest on those debentures. At trial, Charles Sachs, an attorney, testified that he performed legal services for Jefferson Loan Company starting in the mid-1960s until about 2000. In the early 1980s, he and his wife invested in Jefferson Loan Company and received debentures. Court records state that Sachs handled the investment and later conceded that he did not ask for any financial statements of Jefferson Loan before making his investment nor did he do so in the ensuing years.
In 2001, Jefferson Loan Company received a $12 million line of credit from Valley National Bank guaranteed by Cook, Caposella and Cook's wife, Helen. Court records indicate that pursuant to the agreement with Valley National, Jefferson Loan Company was to have sent out a letter informing investors upon renewal of their debentures that one of its dealers had experienced financial difficulties and would be unable to satisfy its obligations to Jefferson Loan Company. Sachs testified and presented the testimony of three other investors stating that they had never received such a letter from Jefferson Loan Company. On Dec. 13, 2006, Jefferson Loan informed its debenture holders that it was ceasing operations and liquidating its assets, citing the low loan volume to the state of the auto industry and the popularity of leasing, according to a letter from Jefferson Loan Company. Associated financial records indicate that Jefferson Loan Company's deficits and net losses continued to increase from 2002 through 2006. Jefferson Loan owed Valley National Bank $7.5 million and negotiated with the bank to allow debenture holders to share equally in revenues once the bank was paid the first $3.5 million, per court records. In his testimony, Cook said the agreement he negotiated on behalf of the debenture holders was against his own self interest since he and his wife had guaranteed the loans made by the bank. According to the lawsuit, the jury awarded damages on the breach of contract claim against Jefferson Loan in the principal amount of Sachs' investment - $71,000. While the jury found that Cook and Caposella breached their fiduciary duty for failing to inform investors of the business' ailing finances, increased deficits, and overall losses from 2002 through 2006, and that the failure to provide that information harmed the Sachs, jurors awarded no monetary damages against Cook and Caposella. The Sachs appealed the ruling due to what they deemed an inconsistency in the verdict for failure to award monetary damages against Cook or Caposella. The appellate court reversed the verdict and ordered a re-trial on both liability and damages, stating that it could not conclude whether the verdict was inconsistent due to the ambiguity in the way in which jury instructions were presented to jurors. Caposella and the Sachs were unavailable for comment.