Self-Storage Owner Sells Remaining Stake in Facility at Center of Bankruptcy Cases, Alleged Ponzi Scheme
Copyright 2014 by Virgo Publishing.
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Posted on: 08/30/2012



 

Jerry Sabini’s name remains attached to Jerry’s Self-Storage in New Windsor, N.Y., but the beleaguered owner recently sold his remaining stake in the business during a public auction tied to his 2009 Chapter 7 bankruptcy case. Developer John Magee purchased the 20 percent share with a minimum bid of $7,500. Magee was a principal in FKF 3, which loaned Sabini $5 million in 2007 and then allegedly turned into a Ponzi scheme.

FKF 3 reportedly issued the $5 million loan to Sabini at 14 percent interest and later financed an additional $1 million to complete the self-storage project. A bankruptcy complaint filed last month by a court-appointed trustee alleges the additional $1 million loan bypassed Sabini and instead paid 10 contractors directly, even though the fund did not take any collateral. The trustee argues the vendor payments were improper and those contractors should repay the money even though their involvement in the project was legal and they are not accused of wrongdoing.

In exchange for making the contractor payments, the creators of the FKF 3 fund—Magee, Burton Dorfman and Mitchell Klein—allegedly assumed 80 percent ownership of the self-storage business independent of FKF 3. Once construction was complete, FKF 3 refinanced the original $5 million loan, but the money it received allegedly went for personal use, including $90,000 to a charity tennis tournament connected to Klein, an unreported amount to the Kennedy Funding Invitational, and $2.8 million to Magee’s brother and companies connected to Magee. Those money transfers are reportedly under investigation.

With the purchase of Sabini’s remaining share, Magee now independently controls the self-storage business, according to the source. Magee, Sabini and a Jerry’s Self-Storage employee were the only members of the public present during the auction.

As many as 100 lenders supposedly provided money to FKF 3. One of them, Daniel Moriarty, has complained FKF 3 should own the self-storage facility and not Magee, since the lenders’ money was used to gain control of the business.

FKF 3 went into bankruptcy in 2010, reportedly owing $60 million to its lenders. The fund claims it is still owed $1.5 million from Jerry’s Self-Storage.

The four-story facility sits on 3 acres and is valued at $2.62 million. However, approximately $4.8 million is still owed on the property to Oritani Bank in New Jersey, in addition to the disputed amount owed to FKF 3, according to the source.

Before the sale of his 20 percent share, Sabini was absorbing $12,000 in monthly losses.