Investors in CM development file lawsuit alleging fraud

NORFOLK

Two investors in a failed real estate venture that left dozens of vacant, blighted homes in some of the region's poorest neighborhoods are suing the real estate agent and lawyers who handled some of the transactions, accusing them of fraud and negligence.

Earl and Debra Byers, both real estate agents, claim in court papers that those actions cost them about $100,000 in deals with CM Development, a now-bankrupt Virginia Beach company. The Byers' company, New Horizon Holdings, filed the suit in April seeking the return of the money, plus $350,000 in punitive damages.

CM Development began in 2001 with the stated goal of buying dilapidated houses in low-income neighborhoods, renovating them and renting them out. In a series of articles last year, The Virginian-Pilot revealed that the company functioned as a pyramid scheme, luring a steady stream of investors and selling houses repeatedly among them at ever increasing prices. By the time investors forced the company into bankruptcy in July, the group owed more than $26 million on about 250 properties across Hampton Roads.

Most properties now are worth less than was borrowed on them, and banks have foreclosed on many.

The Byers' lawsuit is the first instance of investors trying to recover money from other participants in the CM Development venture.

The suit names Sadler & Nicholas - a law firm that handled a large number of CM Development's loan documents and sales - and real estate agent Cynthia Pilkerton and her company, Pilkerton Properties. It claims they committed fraud in making "false representations" that loans would be paid back.

The lawsuit also alleges that attorney Richard Conrod, who acted as closing agent in several transactions, breached his fiduciary duties in one deal.

In one incident mentioned in the suit, New Horizon provided CM Development nearly $32,000 to help build a new house in Newport News in late 2006. According to the lawsuit, the loan was never paid back when the house was finished and sold. CM Development pledged to pay back the loan after it built another new home, but when the house sold for $204,000 in March 2007, the loan wasn't paid then, either.

Sadler & Nicholas handled all the loans and sales on both properties and knew about the outstanding New Horizon loan, the suit states.

Lawyers representing New Horizon and Sadler & Nicholas declined to comment Friday. Conrod said the case against him is "without basis." When reached by e-mail, CM Development President Cary McEntee said he wasn't aware of the suit.

Pilkerton touted CM Development on her Web site as a "turn-key real estate investment opportunity" and helped set up the Byers' first transaction, which promised a 24 percent return on their investment.

Her attorney, Jeffrey Marks, said the lawsuit was "completely off base" in naming his client, who also owned properties with the real estate company.

"She was victimized by CM Development," he said. "She lost a significant amount of funds as a result of this."

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

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