Atlanta

Georgia Real Estate Investor Fined for Violating OFAC Sanctions

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Imagine that you have a real estate investor client who purchased a big house in a gated community at a foreclosure sale. The client then took out a mortgage on the house, paid to make significant repairs and renovations, and ultimately signed a contract to sell it on to a third party. Then, all of a sudden, the Federal government sends your client a cease and desist order, a subpoena, and eventually fines him $4,677,552.00 for violating OFAC (Office of Foreign Asset Control, an agency of U.S. Treasury) sanctions against a family member of a Russian oligarch. Does that sound fun to anybody? Unfortunately, that is more or less what happened to one real estate investor in Atlanta who unknowingly bought a house which was, in fact, owned by a person who was on the OFAC sanctions list.  

This particular person whose name appeared on OFAC’s sanctions list is now known as Karina Rotenberg. She is a family member of a Russian oligarch who was identified for US financial sanctions after Russia invaded Ukraine. For a time in the early 2000’s, she lived and worked and owned homes in Atlanta. At the time, her name was Karina Fox. Guess which last name her Atlanta home is owned under? That’s right – it’s Fox.

Well, it just so happened that, after it added her to the sanctions list, OFAC figured out that Ms. Fox/Rotenberg owned property in Atlanta. This means that her property could not be sold, mortgaged, or otherwise transferred, since doing so would be a violation of the sanctions. OFAC sent a notice to the Fulton County Clerk of Court specifically mentioning the property’s address, and listing several names by which Ms. Fox/Rotenberg was known (including both “Fox” and “Rotenberg”), and asked the Clerk to file the notice in the county records to let the public know that the OFAC sanctions existed. And the Clerk of Court did file that notice. Unfortunately, for reasons which are not clear, the Clerk appears to have only indexed the notice under the name Rotenberg. So, a title searcher who did not know that Karina Fox and Karina Rotenberg are the same person would not necessarily know that this home was owned by a person on the OFAC sanctions list.

Now, here comes our local real estate investor, by all accounts an entrepreneurial fellow who had immigrated from India and worked to further his education and succeed in this county. He operated his real estate deals through an LLC: King Holdings LLC. Most of his past deals had been smaller single-family homes that he had bought in distress, improved, and flipped for a profit. This home would be bigger than most of his past projects. But it was being sold at foreclosure and seemed like a bargain. King Holdings buys the home at foreclosure sale in January 2023.

Around April of 2023, OFAC learns about the foreclosure, and tracks our investor down. He says that an OFAC investigator called him on his cell phone and told him that he should not be doing anything with the home, due to the sanctions. In our investor’s version of the story, the caller seemed sketchy, and he says he wondered at the time if it was a scammer trying to scare him into giving up some personal information.  

Our investor goes ahead and mortgages the property to have funds to begin renovations. The law firm which closed the mortgage says it searched title to the home and did not find the OFAC notice (which, again was indexed in a different name, Rotenberg).

By December, 2023 our investor has learned that this home has significantly more repair/maintenance problems than he’d bargained for. He is beginning to think it was not such a great deal. He signs a contract with a third party to sell the home. After initially listing the property for $2.5M, he finally signs a contract to sell it for $1.4M.

In February 2024, OFAC issues a cease-and-desist order and administrative subpoena to our investor, restating the sanctions and requiring that he immediately stop doing anything with the home. The subpoena also demands information on all dealings involving the property since January 2023. It seems that our investor certified the accuracy of a response that disclosed the renovation work but did not say anything about the property’s listing and pending sale.

In March 2024, our investor closed the $1.4 million sale of the property to the third party buyer.

OFAC took the position that pretty much everything our investor did violated OFAC’s regulations/sanctions. (I also get the sense that they were pretty mad about him not disclosing the sale, and then going ahead with the sale to the third party, after OFAC had issued their cease-and-desist order.) So, as punishment, OFAC imposed the $4,677,552.00 fine on him personally.

It is really disappointing that the Clerk of Court did not index the OFAC notice under all the names that OFAC had listed. Another possible way this could have been avoided is if our investor had checked the OFAC sanctions list before proceeding. This is a great tool that all our CTIC agents should be using too – it could even help you save a client from ending up like our Atlanta investor!

Nat Hardwick sentenced to 15 years

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Nat HardwickThis blog discussed Nat Hardwick, a name familiar to many South Carolina real estate lawyers, last fall when he was convicted of embezzling more than $25 million from his former companies, including his former law firm, Morris Hardwick Schneider. Last week, he was sentenced to 15 years in prison. His co-conspirator and controller, Asha Maurya, was sentenced to seven years after she cooperated with the government.

Nathan E. Hardwick IV, 53, described himself as the face of Morris Hardwick Schneider, an Atlanta residential real estate and foreclosure firm that grew into sixteen states, including South Carolina. The firm once had more than 800 employees and boasted of offices in Charleston, Hilton Head, Columbia and Greenville.

On October 12, Hardwick was convicted in federal court in Atlanta of 21 counts of wire fraud, one count of conspiracy to commit wire fraud, and one count of making false statements to a federally insured financial institution. In federal court, sentencing is typically delayed, and the convicted person is released and allowed to get his affairs in order. In this case, however, Hardwick had been released pending trial on bond. After his conviction, he was described by the U.S. Attorney who prosecuted him as a flight risk and was handcuffed and taken to jail immediately.

This story hits close to home. My company was one of the victims of the crimes.

The prosecutor described an extravagant lifestyle that Hardwick enjoyed at the expense of others. The case was said to be particularly troubling because the illegal activity was orchestrated by a lawyer who swore an oath to uphold the law and represent his clients with integrity. The U.S. Attorney said he hoped the case sent the message that the FBI and the U.S. Attorney’s office will not tolerate this type of white-collar crime.

According to the evidence, from January 2011 through August 2014, Hardwick stole more than $26 million from his law firm’s accounts, including its trust accounts, to pay his personal debts and expenses. The firm’s audited financial statements showed that the firm’s net income from 2011 through 2013 was approximately $10 million. During that time, according to the evidence, Hardwick took more than $20 million from firm accounts.

Asha Maurya, who managed the firm’s accounting operations, reached an agreement last May with the U.S. Attorney’s office and pled guilty. She was expected to testify at the trial, but was unexpectedly not called as a witness.

Hardwick did take the stand in his defense and attempted to blame Maurya with the theft. He said that he trusted her to his detriment, that he was entitled to the funds, and that he was unaware that the funds were wired from trust accounts. Hardwick testified for more than a day and explained that he believed Maurya followed proper law firm procedures.

On the stand, Hardwick, described as the consummate salesman, said that he gave his cellphone number to almost everyone. He said he returned calls and messages within a few hours and instructed his employees to do the same. He apparently believed himself to be a master in marketing and customer service and prided himself in focusing on the firm’s expansion strategy. He hoped to expand to all fifty states and make money through a public stock offering.

With his ill-gotten gains, Hardwick bought expensive property, made a $186,000 deposit for a party on a private island, spent $635,000 to take his golfing friends to attend the British Open in 2014, paid off bookies, alimony obligations, and sent more than $5.9 million to various casinos, all according to trial evidence. Hardwick’s activities lead to the loss of his law license and the bankruptcy of his firm.