CM Development exec caused them to lose millions, investors say

NORFOLK

Two investors claim that a failed real estate company's president repeatedly broke the law in his dealings with them.

Cary McEntee of Virginia Beach-based CM Development allegedly forged documents, embezzled rent money, manipulated sales prices and committed other misconduct, according to a complaint filed Thursday in federal court by investors Paul and Scott Dadaian.

The company's stated business model was to buy dilapidated houses in low-income neighborhoods, renovate them

and either rent them out or sell them.

An investigation by The Virginian-Pilot last year found that more than half the homes were vacant and in various stages of disrepair. Many of the occupied homes did not generate enough rental income to support themselves.

McEntee kited checks to "keep income flowing" and concealed the fact that many properties had multiple code violations and mounting debt, the Dadaians allege. This gave the appearance of "the financial viability of the enterprise," thus allowing McEntee continued access to investor credit, the complaint states.

These allegations are an attempt to prevent a bankruptcy

court from dismissing debts from McEntee and the company.

McEntee started the company in 2001 and formed a circle of about 30 investors. They either lent him money directly via short-term, high-interest loans, or allowed the company to use their names to secure mortgages in exchange for an up-front fee or promised share of future equity. McEntee promised to manage the properties and pay mortgages, taxes and renovation costs.

At its peak, the company and its investors owned roughly 250 properties throughout Hampton Roads, many of which were sold repeatedly among investors at ever-higher prices as the local real estate market escalated.

The Dadaians and several other investors forced McEntee and CM Development into bankruptcy in July, after months of mortgages and taxes went unpaid. McEntee agreed to shut down soon after.

The Dadaians and other creditors have filed $9.1 million in claims against McEntee and the company.

According to Thursday's complaint, the Dadaians themselves owned 48 houses at one point and held about $5 million in loans. Most of these properties have since been sold in foreclosure. The suit claims McEntee owes them $712,000.

If the Dadaians are granted relief under a certain provision of the bankruptcy code, McEntee would have to repay them once the case is over, even if he owes no one else. If they are granted relief under another provision, McEntee would continue to owe all of his creditors.

Since filing for bankruptcy protection, McEntee has testified that he repeatedly falsified loan documents to make it appear buyers used their own money to make down payments when McEntee actually provided the cash himself out of the sales proceeds. The FBI has begun an investigation.

McEntee's wife, Rosalie, contradicted other parts of her husband's testimony during her own bankruptcy hearing Tuesday.

Cary McEntee explained various payments from the company to his wife by saying that she worked for CM Development and lent it money. Rosalie McEntee testified that she did neither.

When reached via e-mail Friday, Cary McEntee wrote that he thought the complaint made by the Dadaians' lawyer, Karen Crowley, "is about her clients being paid back."

"I always had every intention of working with her clients to pay them back," he said. "They are great guys."

Meghan Hoyer, (757) 446-2293, meghan.hoyer@pilotonline.com

Matthew Jones, (757) 446-2949, matthew.jones@pilotonline.com