Phyllis Eller-Moffett and Carolyn Grant had known each other for 15 years when they met last fall for dinner at the posh Umstead Hotel and Spa in Cary.
Both prominent Triangle businesswomen, their friendship was strained over a $50,000 personal loan that Grant, a former chairwoman of the Greater Raleigh Chamber of Commerce, was more than a year late in repaying.
At that dinner, according to Eller-Moffett, Grant slid a check for $72,000 across the table, the amount plus interest that she owed.
"Well, of course, it bounced higher than the sky," said Eller-Moffett, CEO of Cary-based Quality Staffing Specialists.
Eller-Moffett was one of dozens of friends and acquaintances - many of them prominent local business people - from whom Grant, 61, borrowed money from 2006 to 2010, as much as $7 million or more. Some were personal loans, others were for real estate projects. Many promised returns of 20 percent or more on short-term loans that lasted from 30 days to a year.
Now that most of these projects have not panned out or are delayed, the scale of Grant's borrowing has become apparent to all involved.
Former friends, including Eller-Moffett, have sued Grant and are demanding to know where their money went. So far, judgments of more than $3.2 million have been awarded against Grant in Wake County.
It's unclear how many of the loans were actually paid back.
The Secretary of State and the N.C. Real Estate Commission have launched investigations, and earlier this month, the Secretary of State's Office issued a temporary cease and desist order against Grant and her Raleigh real estate firm, Omega Property Group.
The order says Grant sold investments in the form of promissory notes - documents that declare a promise to pay a sum at a certain date - that were not properly registered with the state. The order also says Grant solicited a $300,000 loan for a project in Watauga County in Western North Carolina and then did not use the money for the development.
The cease and desist order prevents Grant from soliciting new investments.
The lawsuits, and the documents they have produced detailing investors' dealings with Grant, provide a window into the way some wealthy individuals do business - a world where a promissory note and a handshake are enough for a person to hand over what for many others would be a year's salary.
Even during the depths of the economic downturn, Grant was somehow able to raise millions at a time when most investors were seeking to avoid risk.
Complaints lodged with the N.C. Real Estate Commission accuse Grant of fraud. Eller-Moffett gave a copy of Grant's bounced check to the Wake County District Attorney's Office.
The DA's office has also has been presented with other documents related to Grant's business practices. The office has not requested that any law enforcement agencies investigate Grant, District Attorney Colon Willoughby said.
Grant referred all questions to her Raleigh attorney, Kieran Shanahan, who dismissed the complaints as investors looking for someone to blame for highly leveraged deals that went sour when the economy tanked.
"These were all accredited investors with signed statements saying that they understood the risk, that they had the net worth to be able to withstand the loss," Shanahan said.
An accredited investor is someone with a net worth of $1 million or more, or a person whose income was in excess of $200,000 in the previous two years.
Shanahan said the business practices followed by both Grant and Omega Property Group included a requirement that potential investors fill out a questionnaire documenting their net worth.
At least two people who lent Grant money, Vicky Hortman and her son Bill Land, say they are not accredited investors and were never asked to fill out a questionnaire. Hortman said the $100,000 she lent Grant was all of her savings.
Shanahan said Grant intends to appeal the cease and desist order, adding that it is Grant's intent to pay those investors back through new investment opportunities that she is exploring.
"Making allegations of wrongdoing that are unfounded or interfering with her future business prospects is only going to undermine her ability to repay them," Shanahan said. "Believe me, she is concerned about this. She's losing sleep over this. Many of these people were her friends."
Leading the chamber
Grant first rose to prominence in the Triangle in 1990s when she became the Raleigh chamber's first female chair. She had spent nearly two decades building a successful small business, Plants by Grant, which provided houseplants to companies.
After selling the business in 1996, she got into real estate development. Grant was a partner in World Trade Park, an office and industrial complex near Research Triangle Park, and worked as a broker for TradeMark Properties, a prominent Raleigh real estate firm that has since become Coldwell Banker Commercial TradeMark Properties.
She also became active in politics. She was a Democrat when she ran unsuccessfully for Raleigh mayor in 1999. In 2002, after switching her party affiliation to Republican, she lost to Rep. Brad Miller in a bitter contest for his U.S. House seat.
Grant formed Omega Property Group in 2005 and began soliciting funds for a number of developments. She tapped into her network of local contacts in business and political circles, and also pitched projects to women she befriended on vacation or at the gym.
Many were fellow women business owners who sought out each other for mentoring and support.
Nancy Seymour has known Grant for 17 years. She had her own Raleigh company, Natural Solutions, that made products to relieve bug bites and other ailments. The business was a casualty of the economic downturn, and Seymour is now working part time in customer service.
Seymour made four loans totaling $138,000 to Grant from December 2007 to June 2009, according to promissory notes.
The News & Observer obtained copies of more than 70 promissory notes issued by Grant to various individuals. Shanahan confirmed that Grant and Omega had business relationships with Seymour and other investors contacted by The News & Observer, but said it would be inappropriate to discuss the specific relationships.
The terms of loans from Seymour varied from one month to 13 months. Three of the loans were for $40,000 and called for $17,799 in interest to be paid over the term of each.
Seymour said some of the money was to be invested in a project called Spring Forest, a proposed residential subdivision in North Raleigh on Spring Forest Road.
An entity Grant created for the project, Spring Forest I, purchased land for the development, but it has since been foreclosed on.
The amount Seymour is owed is now approaching $200,000, including interest, but Seymour said she's not worried about Grant eventually paying her back.
Seymour said Grant is working tirelessly to repay her lenders and is simply a victim of the bad economy.
"Carolyn will make due on these loans one way or another," Seymour said. "That's what I don't worry about. I'm not banking on the project. I'm banking and believing in her, steadfastly."
In addition to Spring Forest, Grant's other projects included an existing medical office building in Carolina Beach, a condominium project in Wilmington called The View on Water Street and a land development deal in Banner Elk in Western North Carolina.
Grant offered generous terms to those she borrowed money from. In addition to high interest rates, many included regular interest payments over the term of the loan, a common practice that provides lenders with steady income over the term of the loan.
It's illegal for consumers to pay such high interest, but these were considered business loans and were thus exempt from the state's usury laws.
The loans were promissory notes that included her signature under a personal guarantee. Copies of more than 70 such notes totaling $7.8 million were turned over as part of discovery in a separate lawsuit related to a coal mine investment in West Virginia that Grant was involved in.
In a complaint sent to the state Real Estate Commission, Steven Winters, a Durham man who invested in the coal mine project, alleged that Grant moved money from bank accounts affiliated with that project into Omega Property Group accounts.
While the list of people who lent Grant money includes many Triangle residents, it also includes numerous people from outside the state and country.
Thurgood Marshall Jr., a Washington lawyer and son of the late Supreme Court Justice Thurgood Marshall, lent Grant $129,600 in June 2009, according to one promissory note.
Dermot Weld, one of Ireland's most successful racehorse trainers, lent her $1.1 million in July 2009. The loan was due just a month later, according to the promissory note.
A meeting, a million borrowed
Raphael Sassower, a philosophy professor at the University of Colorado at Colorado Springs, said he and his sister gave Grant about a million dollars over a 12-month span, some of it for real estate deals and others that were simply personal loans.
Sassower's sister met Grant on a cruise. The siblings have gotten only a fraction of their money back, Sassower said, but he's convinced hiring an attorney to get a judgment against Grant would be a further waste of money.
"I think there are two theories out there," Sassower, 55, said. "One that believes that the millions are there to be found and the other that they are not to be found. I think we're of the opinion that they are not there to be found."
The promissory notes make no mention of specific real estate projects or of the equity stake that the lender will receive in exchange for the money.
There appears to be no distinction between loans that were to be investments in projects and others, such as Eller-Moffett's $50,000 loan, that were simply intended to provide Grant with some short-term cash to keep a deal together.
Eller-Moffett said that when she first received the promissory note from Grant, she told her friend that the terms - 20 percent interest for a 30-day loan - were too generous and that she would gladly accept 10 percent.
Grant responded that the cost of the loan was more than worth it, Eller-Moffett said.
Shanahan, Grant's lawyer, said Grant would often use personal loans to do the initial work on a project before forming a limited liability corporation and seeking accredited investors.
"The truth is, hundreds, thousands, millions of Americans have made millions of dollars off real estate deals structured exactly like these deals were structured," he said.
Most real estate projects are financed with acquisition and development loans from traditional lenders, which are secured after investors put a certain amount of cash into a project.
Such bank financing was extremely difficult to obtain during the years when Grant did the bulk of her borrowing. Since the credit crunch, banks have tightened their lending standards and drastically curtailed real estate lending.
The way Grant structured the deals is not unheard of, but it is outside of the norm, said David Warren, a bankruptcy lawyer at Poyner Spruill in Raleigh.
Given the time it takes to develop real estate, and the short maturity dates on the loans, Warren said the structure only heightened the riskiness of the deals.
"The only way they could be paid back is if there were more investors or if there was a conventional bank loan," he said.
Warren said the banks he represents likely wouldn't get involved in projects that had a number of high-interest, short-term personal loans attached to them.
"The banks I represent wouldn't touch this unless it wasn't disclosed to them," he said.
Grant's past involvement in the Raleigh Chamber, her time on the state Board of Transportation, and her involvement in high-level politics all played heavily in individuals' willingness to lend her money.
"She traded on her trustworthiness as a person," Eller-Moffett said, citing Grant's leadership of the Raleigh chamber. "She ran for mayor. She ran for the House. She did all this stuff. You Google her, and you don't see anything bad about her."
Grant was also offering people big returns at a time when instability in the global economy was making most investors risk-averse.
Vicky Hortman first sought out Grant when she was looking to start her own business and wanted a mentor.
"She was very helpful, gave me lots of advice," said Hortman, who lives in Raleigh and owns Pure Water Technology of Central and Eastern N.C.
Hortman stayed in Grant's home for five months in early 2007 after separating from her husband.
After Hortman received a large sum of money from the sale of a family lake house, Grant took her to dinner and told her about a townhouse project on Tryon Road in Cary that she was developing.
Hortman invested $100,000 in the project in August 2007, and she also talked her son into investing $50,000. Hortman's loan was for 12 months and promised a 24 percent return with monthly interest payments.
Hortman said she had given Grant $10,000 loans several times in the past and had always been repaid.
Hortman said Grant told her the project was proceeding on schedule until her loan came due, when she asked for an extension of several months. After continual delays, Hortman began calling the other names listed on project documents.
They told her that the project had been inactive for some time and that no land had ever been purchased.
Grant continued to pay Hortman interest on her loan until the latter part of 2009. The payments have since stopped, according to Hortman.
Hortman said the $100,000 she lent Grant was her entire savings, and she can't afford to hire an attorney to get a judgment against Grant for the money.
Huge returns promised
Another investor, Elizabeth Long, met Grant at a Raleigh gym in the spring of 2007. After learning that Long's husband, Robert Clark, was a dermatologist and partner in theCary Skin Center, Grant told the couple about an investment opportunity in a medical office building in Carolina Beach.
"It seemed like a very airtight type of investment of quarterly payments back to you for the investment, and then after five years the building would be bought out, and there would be a nice return," Clark said.
The couple said they invested $130,000 in the project and for the first year or so received quarterly payments of about $3,000. Grant then approached the couple about making a much larger investment in the Spring Forest project in North Raleigh.
The couple, along with Clark's business partner, Timothy Flynn, ended up lending Grant $600,000 in June 2008, Clark said. It was a six-month loan with an interest rate of 20 percent.
When the loan came due, Grant asked for several extensions, according to Clark. In August 2009, she met with Long and asked for an additional $100,000, to be repaid in a month, saying that's all she needed to close the deal.
Long gave her the money, but after another month came and went, the couple had their financial advisers investigate the deal.
Long, Clark and Flynn sued Grant and Omega Property Group in Wake County and were awarded $879,701, plus interest, in February.
"As we investigated, we just realized this lady is just not going to pay us back," Clark said.
Whether Clark or any of Grant's other lenders will ever see any of their money remains to be seen. The projects Grant solicited money for appear to have few assets.
The condo project The View, like the Spring Forest project, was foreclosed on.
Land purchased for the project in Banner Elk is being foreclosed upon, and foreclosure proceedings have begun on Grant's North Raleigh home, valued at $655,000.
Grant was deposed and submitted financial documents as part of the Long, Clark and Flynn lawsuit, but those documents are sealed under a confidentiality order and would need to be made public by a court order.
In addition to finding out where the money went, Clark, 57, said he and other spurned investors want to make sure others know about Grant's activities.
"She's very smooth," he said. "It's kind of embarrassing to have egg on your face, but the one thing I don't want to happen is for this individual to be able to continue to shellac people."
Grant has been a prodigious campaign donor to both Republican and Democratic candidates over the last decade. In 2008, she gave more than $20,000 to Gov. Bev Perdue and other political campaigns, according to the State Board of Elections.
Despite her financial troubles, Grant continues to be a regular at political and social events in Raleigh.
Eller-Moffett said she was warned by a friend that Grant would likely be at an event in North Raleigh to which she was invited. Her friend was worried the two might come to blows.
"You go to any political function and she's right there, happy as a clam," Eller-Moffett said. "She'severywhere. She hasn't curtailed her activities one bit."
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