LV real estate probe mired in controversy

Phil Levine

Friday, Nov. 26, 1999 | 11:05 a.m.

The Nevada Real Estate Commission this month levied fines against three real estate brokers following a four-year investigation and nine days of disciplinary hearings.

But attorneys for the brokers are questioning the state's motives for pursuing the lengthy investigation, pointing out that investors in all the deals at issue made substantial profits.

Representing the Commission, the Attorney General's office alleged the brokers violated state real estate disclosure laws. State officials claimed the brokers did not adequately reveal to investors details of their involvement in the acquisition of seven properties.

However, defense attorneys say the allegations revolve around minor technicalities and cite the relatively small fines levied as further proof.

The Commission fined broker Robert Brinton $21,500, ordered him to pay up to $25,000 in hearing costs, and required him to attend 36 hours of continuing real estate education. Brokers Albert Flangas and Michael Sarkis were each fined $1,000, and also required to attend nine hours of continuing education.

The Attorney General's office had sought to revoke the real estate licenses of all three brokers.

The Attorney General's office investigated the brokers' involvement in seven real estate deals dating back to 1992. In separate deals conducted between 1992 and 1994, Sarkis and Flangas found investment properties that they brought to the attention of Brinton; the two brokers then entered into separate agreements to sell the properties to Brinton.

Brinton subsequently gathered several investors and formed real estate investment trusts to purchase six properties, acting as trustee for the organizations.

Brinton sold the properties to the trusts for the purchase price he paid, but received a "10 percent or less" commission for his role as broker on the deals.

In the seventh transaction, no real estate investment trust was formed and Brinton acted only as a broker.

The state alleged the three brokers violated disclosure requirements by not informing trust investors about the monies they earned in finding, purchasing and re-selling the properties to the investment trusts.

State officials say that information was important and could have shaped investors' decisions to join the investment trusts.

The defense attorneys disagree, maintaining the law did not require the brokers to contact each trust beneficiary and inform them of their prior business interactions. They also maintain the trusts purchased the properties at or below fair market value.

Everyone involved agrees that the transactions made substantial profits. Gus Flangas, attorney for his brother broker Albert Flangas, said a total of $5 million in investments returned more than $15 million to trust beneficiaries.

Flangas cited the purchase of a 60-acre tract of land in northwest Las Vegas, at the intersection of Fort Apache and Farm Road, as typical of the successful transactions investigated by the commission.

"In the case of the Apache Farm North Real Estate Trust, the investment trust purchased the property for $17,500 per acre and sold it for $80,000 an acre," he said.

While no one questions the successful nature of the deals, lawyers involved in the case differ sharply as to the cause and validity of the commission's investigation.

"The fact is that a number of rich people became a lot richer from these deals," said Flangas. "You can't help but wonder why the A-G's office would spend so much time and money on minor technical questions."

However, Chief Deputy Attorney General Richard Linstrom said his office aggressively pursued the cases to "send a message out to other real estate brokers."

"We feel good about the results of the case," he said. "We believe we proved our case. We weren't in this for the money, but rather to send a message out to other licensees that they must meet all (real estate) disclosure laws."

Dale Hayes, the attorney representing Sarkis, characterized the lengthy investigation as "very stressful and very costly."

"After nine full days of (disciplinary) hearings and a lot of time and expense, you have to ask yourself 'what are we doing here?" said Hayes. "We (Sarkis) prevailed on 16 charges, and the other (two) are very minor violations. There is also the issue of statute of limitations. My client's deal was made in late 1991, and the three-year limitation should have barred these proceedings from involving him."

Brinton attorney Kelly Swanson echoed those sentiments.

"In August, they (the attorney general's office) sought to revoke my client's license, wanted him to admit his guilt and pay a $300,000 fine," said Swanson. "They disregarded the fact that Mr. Brinton was not selling real property but rather an interest in a trust. This never was a revokable offense, and given the outcome, the commission obviously agreed with us on that.

"And as to the technical violation, we made them an offer -- far above the fine levied -- to settle the technicality last summer, but they saw this as some sort of conspiracy taking advantage of these poor unsuspecting millionaire (investors.)"

Swanson said Brinton has been a successful broker for more than 20 years and this was his only disciplinary hearing.

Gus Flangas also questioned the connection between a complainant in the case -- Allen Anes -- and the Attorney General's office.

"(In the fall of 1998) it came to light that Anes' son-in-law was a deputy for the attorney general's office, and was previously in charge of prosecutions on behalf of the (real estate) division," he said. "In these cases, the division's investigators normally handle the matter. However, I was told by several investigators that the A-G's office took full control of the case before they had a chance to look into it."

Linstrom said his office was merely fulfilling its responsibility by investigating these transactions.

"The decision to pursue this investigation was the made by the Real Estate Division, it was their call," he said. "The reason our people handled the investigation was that this was a complex legal case involving multiple deals. The commission members and investigators are not lawyers, and can't be expected to know the (legal) intricacies the way an attorney does."

Real Estate Division Administrator Joan Buchanan said her office initially "alleged the violations," but from that point acted on the legal advice provided by the attorney general's office.

For his part, Linstrom also cited a judicial review of the matter as further proof his office acted in accordance with its duties.

"Last March, Judge (Michael) Cherry reviewed this issue and found there to be no impropriety in our investigation," he said. "Also, it's worth noting the deputy in question was not involved with the Real Estate Division (attorneys) when this investigation was under way."

Cherry reviewed the ties between Anes and the Attorney General's office as part of a series of past and pending civil suits involving the same real estate deals investigated by the state.

The civil suits alleged that Anes and fellow investor Ernest Becker were the victims of illegal "double escrow," and were not fully informed of the nature of the transactions.

Separate civil actions involving Flangas have been dismissed, while cases involving Brinton and Sarkis are slated to move ahead next month.

Linstrom acknowledged his office has limited resources, restricting the number of real estate cases it can investigate. However, he said investigating deals where no one loses money can serve as useful reminders to both the public and real estate brokers.

"When the (real estate) bubble bursts, I believe Nevadans will thank us for investigating cases such as these," he said. "I've speculated on land in both San Francisco and Hawaii, and when prices are high it's hard to picture the down side. But it always happens, and when it does, full disclosure is even more critical for people to make an informed (investment) decision."

Despite the relatively light fines levied, at least two of the three attorneys representing the brokers say they plan to appeal the commission's findings.

"My client was 100 percent vindicated on five of the seven transactions prosecuted," said Gus Flangas, who plans to appeal. "They fined him on only two out of 54 alleged violations. We don't believe he had a duty to inform trust beneficiaries and intend to appeal that fine."

Flangas said he would also seek reparation for his fees in this case, estimated to be about $50,000.

Hayes said he was undecided as to whether he would appeal the findings on behalf of Sarkis.

Swanson said he still wanted to examine the findings, but probably will decide to appeal in behalf of Brinton.

"I want to give this a little more thought, but I am leaning towards an appeal at this point," he said. "These transactions didn't hurt the public and certainly didn't rise to the level of revocation of licences.

"I can tell you I wish that Mr. Brinton would bring this type of deal to me anytime."

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