You Can't Cheat an Honest Man - James Walsh [79]
Both men cooperated extensively with prosecutors and the civil attorneys. Under federal sentencing guidelines, Googel and Sisti faced sentences of between two and five years. They hoped their cooperation would convince the sentencing judge to impose even less time.
It didn’t. The judge not only concluded that they deserved no leniency but found that the guidelines did not adequately reflect the severity of their crimes. He chastised Googel for recruiting millions in investments even after bankruptcy experts had advised that Colonial Realty was failing. And he concluded that Googel had obstructed justice by attempting to arrange a meeting with a witness being interviewed by federal authorities.
Worse still, as Colonial Realty was collapsing, Googel had transferred millions to relatives. Much of that had been recovered as part of a deal with the bankruptcy trustee; but Googel’s family was allowed to keep about $1.25 million in cash and other assets—including a halfmillion dollar house.
The judge sentenced Googel to nine years in a federal prison camp.
The judge sentenced Googel to nine years in a federal prison camp. square-foot mansion with a movie theater and shooting range and ordered custom-made multimillion-dollar yachts. At his sentencing hearing, though, Sisti seemed delicate and humble. He spoke in a calm, unimposing voice, telling the judge he was sorry for his crimes and sorry he could not make things right. “I can’t change what I did,” Sisti said, “but I can change the person who did them. I just hope I live long enough to make it all up to [my family].”
The judge gave him an eight year sentence to work on the change.
The criminal sentences moved the focus to various civil lawsuits. In April 1994, a panel of mediators approved a settlement worth about $100 million. The deal resolved some 3,000 lawsuits, representing most of the civil actions spawned by Colonial Realty’s collapse; it bailed out investors who’d not only lost their investments but also owed banks for loans that had paid for limited partnerships. All but $18 million of the $100 million owed by the investors was forgiven by the banks under the settlement.
In exchange for the forgiven debts, the banks reserved the right to collect half of any judgment from Andersen or other defendants.
Two of the legal and accounting firms accused of improprieties by Colonial Realty investors and creditors were also part of the settlement, agreeing to pay a total of $11 million. Admitting no wrongdoing, the law firm of Levy & Droney agreed to pay $10 million and the accounting firm of Kostin Ruffkess & Co., $1.1 million. (The payments were covered by professional liability insurance.)
A few months later, Sisti and Googel reached a settlement with the investor groups that allowed each of their families to keep about $1.1 million in return for assurances that they had fully explained their tangled finances and disclosed all assets. The perps turned their burned investors into reluctant allies by helping their lawyers prepare lawsuits against accounting and legal firms that participated in selling Colonial Realty partnerships.
In 1996, a federal appeals court considered the burned investors’ claims against Arthur Andersen in detail. They alleged that Andersen had prepared or approved financial projections for the limited partnerships that “bore no relation to reality” and misrepresented the real estate market.
The investors alleged that Andersen “knew that the projections would make an investment in [the limited partnerships] appear economically feasible...notwithstanding the excessive fees charged by the general partners and made the projections, which they knew to be excessive, for the express purpose of distracting the attention of plaintiffs from those fees.”
Andersen argued that the language contained in the PPMs concerning the limited scope and inherent uncertainty of the projections prevented reliance on the projections as a matter