CA Ventures Execs Defrauded Investors, Lawsuit Alleges

Investors are turning up the heat on CA Ventures and its executives Tom Scott and John Diedrich.

A group of investment firms sued in Cook County this month, alleging that Scott, founder and CEO of CA Ventures, and Diedrich, its chief investment officer, misrepresented how they intended to use investor funding, in order to pay off debts they personally guaranteed.

The investors, led by a Chicago-based LLC called TCP GP Fund I Aggregator, claim they’ve lost most of nearly $14 million they advanced to CA Ventures entities in 2021 and 2022.

Scott and Diedrich allegedly told them the money, originally provided as loans, would back developments, including several industrial projects. The investors converted over $8 million in loans into equity in the projects, but the developments haven’t advanced or been successful, due in part to the failure of CA Ventures to provide more funding for them, the lawsuit said.

In reality, the investors claim, the money they put up was misused by Scott and Diedrich to pay off loans they had coming due and had provided personal guarantees to pay off. The complaint relies upon information provided to the investors by a former CA Ventures executive referred to as “CA Insider.”

Scott called the allegations “outrageous,” and he, Diedrich and the company plan to fight them in court, their attorney, David Rammelt, told The Real Deal.

“It has been an extremely challenging environment for everyone, and like the other major players in this space, CA Ventures has not been immune from these apocalyptic market forces,” Rammelt said. “It is unfortunate when sophisticated investors, who should fully understand the risks associated with real estate speculation, ignore the realities of the marketplace and attempt to contort what is, at best, a garden variety breach of contract claim into alleged ‘fraud’ or something equally nefarious.”

The investors have narrowed in on debt CA Ventures and its affiliates owed to a New York-based lender, Brigade Capital Management, claiming that the investors were duped into providing funds to CA Ventures that allowed the firm to restructure its debts to Brigade.

Diedrich falsely claimed CA Ventures had “tremendous assets” to persuade the investors to agree to a restructuring and secure financing from Brigade, the lawsuit claims. Diedrich also failed to disclose that the CA Ventures entity would guarantee the development firm’s obligations under the Brigade loan, and that CA Venture’s industrial arm would pledge its assets as collateral to Brigade to secure the loan. As a result, the investors were “unknowingly left in an undercapitalized position,” the suit said.

Later, Brigade discovered that Scott and Diedrich had diverted development fees meant to pay down the Brigade loan for other purposes, violating loan covenants, the suit claims. Despite their instructions to the CA Insider to lie about the misuse of funds, the insider came clean to Brigade.

As a result, Brigade put its CA Ventures loan into default and demanded immediate payment. Brigade “exerted extreme pressure” on Scott and Diedrich to address the issue, the suit says. To cover up their misconduct, Scott and Diedrich pledged additional assets and personal guarantees, giving Brigade control over key CA Ventures assets and bank accounts, to the detriment of the investors, the suit claims.

Brigade didn’t return a request for comment.

The TCP investors also claim CA Ventures used shoddy accounting practices to dilute the amount of equity they should have had in various development projects. By March this year, the loan from Brigade remained outstanding despite its demand for immediate payment more than a year earlier.

The suit also brings up Nishant Bakaya, a former executive of CA Ventures who sued the company late last year claiming he was owed $6 million for his interest in CA Ventures assets that had also been pledged as collateral to the TCP investors as part of a financial workout plan to return the investor funds.

CA Ventures “continued to delay any genuine discussion or negotiation with TCP until mid-June 2024, when TCP learned [CA Ventures entities] had once again been buying time so as to pacify creditors and litigants relating to debt in which Diedrich and Scott had personal liability,” the investors’ suit claims.

This lawsuit comes as CA Ventures is in default for failing to pay off multiple multifamily and senior housing loans in the Chicago area. Last year, the firm also surrendered a large Arlington Heights apartment complex to its lender, an affiliate of private equity firm TPG, after failing to pay off its $75 million loan.