Noble Capital Group, an Austin-based investment management firm, is facing a RICO suit accusing it of fraudulent practices that echo the worst misconduct in the runup to the 2008 financial crash.
The suit, filed on July 5 by a business partner and creditor, also names Noble Capital’s principals as the lead defendants, as well as several similarly named affiliates that formed a “vertically integrated” network of entities that manages real estate loans from origination to special servicing and foreclosures, reaping fees every step of the way.
The plaintiff, a San Francisco investment fund called US Capital/Noble Capital Texas Real Estate Income Fund, says that, despite its name, it is separate from Noble Capital Group — save for a Limited Partnership Agreement — and is one of the Austin firm’s primary business partners, main creditors and “primary victims” in Nobel Capital’s alleged scheme to defraud outside investors and US Capital.
Some of the maneuvers Noble Capital stands accused of — particularly falsifying due diligence materials and altering credit reports and background checks to get US Capital to fund loans to high-risk borrowers — are reminiscent of those practiced at the height of the 2007 housing bubble when a hot market, cheap credit and easy loan approval led to a national financial crisis.
US Capital is suing over a real estate income fund that it established in a limited partnership with Noble. The fund manages $24 million in assets and funds senior secured first-lien mortgages on residential real estate, according to the court document. The suit names as defendants a number of enterprises and individuals connected to various Noble Capital entities.
US Capital accuses Noble of defrauding it out of “substantial assets” by failing to conduct proper due diligence and providing misleading credit information to recommend loans that had an “unacceptable risk of default” while collecting fees and other revenue throughout the lending, servicing and foreclosure process.
Specifically, the suit claims Noble provided false and misleading credit memoranda — including some that omitted information about some borrowers’ multiple foreclosures or the fact that they were already in default to other Noble entities — to induce loans from the fund.
The lawsuit further claims that 13 percent of the loans that Noble sourced for the fund — 17 percent of its total assets — defaulted. US Capital claims that Noble planned to shift its losses from its other entities to the fund.
In addition, the suit alleges that Noble practiced false advertising, making baseless guarantees of above-market returns with no risk to investors. US Capital also accuses Noble of lying to investors about its credentials and regulatory clearances, its history of bankruptcies, and its leverage.
Joseph Garnett, an attorney representing US Capital, filed the suit in the U.S. District Court in Austin. Garnett declined to comment on the case when reached by phone. Several messages left with the Austin Noble Capital office were not returned.
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