Profit

Recovery Park: Lenders took advantage of information gathered from for-profit launch


As Crain’s reported in August, Nicholson and Howell filed complaints with the state, nine to 10 months after they and Polk withdrew their support from Recovery Park.

In his complaint to the state, Nicholson wrote that he had asked Recovery Park for documents claiming the loan notes were in default and that the association would not be able to repay the money it had to. “Recovery Park refused to do so,” he said, noting that he believed the nonprofit was functionally bankrupt despite his continued management job.

“My legal counsel informs me that your office is responsible for regulating Recovery Park and is the only entity that can force a disbandment,” Nicholson said in a letter to the Michigan attorney general and LARA.

Howell’s complaint raised the same issues and called for an investigation into Recovery Park.

“I agree with Mr. Nicholson’s back of envelope estimate that Recovery Park owes creditors $ 3 million with virtually no assets, but it appears to continue to use its leadership and present itself as a viable entity, ”Howell said.

In July, LARA sent Recovery Park and Wozniak a cease and desist order, ordering them to stop offering unregistered securities in the form of promissory notes to investors. He gave the association and Wozniak 30 days to request a hearing on the matter. Recovery Park requested an informal meeting before a formal hearing.

In the written response to LARA, obtained by Crain’s, the association’s lawyers argue that the Recovery Park promissory notes issued in exchange for the loans made by the three businessmen do not constitute securities, and even they did on the face of it, they would be exempt because they were issued by a nonprofit charity not benefiting anyone.

The promissory notes issued for loans to Recovery Park do not constitute securities, as they were short-term notes, the attorney said. They also do not pass the securities tests as, among other things, they did not provide guaranteed returns or promised above-market returns, the agreed 6% interest rate was equal to or less than the market interest rate, and Recovery Park has not marketed the notes to a large portion of the public or portrayed them as risk-free, the attorneys said.

The notes also exposed the risk, they said, making it clear that the ability to repay loans on time was subject to its ability to provide additional financing.

“The plaintiffs here (…)”, said the lawyers.

All parties were represented by legal counsel and the terms of the notes were negotiated by the parties’ counsel, they said.