June 9, 2009 - Platinum Condominium Development LLC and Marcus Management Las Vegas LLC, Las Vegas NV

Platinum latest condominium hotel development to face litigation

Developers of the Platinum hotel and condominiums are facing a potential class action lawsuit by owners who claim they were deceived into buying units as lucrative investments. The lawsuit charges securities violation and fraudulent misrepresentation, and the plaintiffs' have hired the same lawyers who are handling similar complaints filed against Signature at MGM Grand and Trump International Hotel & Tower.

Platinum Condominium Development LLC and Marcus Management Las Vegas LLC, both Nevada companies, are among those named in the lawsuit. The complaint alleges violations of two sections of the Securities Act of 1933 based on allegations that the buyers were sold the condo-hotel units as investments and guaranteed a stream of rental income, but were never given a prospectus or full disclosure of the risks involved before buying. The complaint further alleges violations of the Land Sales Full Disclosure Act and charges important facts were concealed.

Buyers claim the Platinum transactions were handled as merely real estate purchases, when the units were actually required by law to be registered as securities. Plaintiffs' attorney Robert Gerard said the developers and management company crossed the line from a real estate transaction into a securities sale when they used the Platinum's rental program as an incentive to "induce" his clients into buying.

"They should have represented this as a registered security," he said. "They failed to register it as a security, which it is. In this case, the evidence is strong because they attach the business fundamentals of the rental program to the (purchase) contract."

The sellers promoted the condo as a rental investment instead of simply a place to live, Gerard added. The Platinum, a 255-unit luxury residence and hotel, could offer a rental program after the purchase. Developers could also mention the rental program in passing but could not quote room rates and occupancy numbers, he added.

Potential buyers were told they could expect room rates of a minimum of $200 per night, with those rates going up as high as $300 or $400 a night on weekends and at other times. A 90 percent occupancy was predicted, the complaint alleges. Gerard put the current average Platinum room rates at just above $100 per night, but did not know the occupancy rate. Attorneys for Platinum did not returned phone calls for comment at press time.

Rental revenue was to be split 50/50 between buyers and the rental company, but additional fees owed by the buyers were not disclosed, the complaint states.

"The Platinum case is a typical condo-hotel case," Gerard said, referencing the Signature and Trump also handled by his Gerard & Associates law firm. The Trump case, which was filed last fall and is still seeking certification as a class action, made similar allegations. Among those, buyers were allegedly promised certain-sized units and later given smaller condos. Those types of allegations are also made by some Platinum buyers.

One of the Platinum plaintiffs, Jesse Bahkshian of California, was given brochures indicating the residence would be 911 square feet at the time he purchased a unit for $440,000 in December 2006. But the actual model he received was 750 square feet --18 percent smaller, court filings state. Other buyers also received smaller condos than promised at the time of sale.

The Platinum case was originally filed in Clark County District Court on April 20, but attorneys for the defendants filed a motion on May 29 to move the case to U.S. District Court. Four of the five named plaintiffs are out-of-state buyers.

The Trump case has been on hold pending an arbitration clause ruling on nine Signature cases, some of which were filed in state court and others in federal court. Both Trump and Signature contracts had similar arbitration clauses.

Hundreds of Signature buyers had sought an exemption allowing the cases to be heard at trial. Signature's plaintiffs received a split decision: In March, a federal court magistrate, Peggy Leen, ruled the arbitration clause unenforceable. However, in April, the Nevada Supreme Court upheld the arbitration clause.

The final outcome maybe close to two years away for Signature, Gerard said. He is awaiting the outcome of Signature's appeal of the federal magistrate's decision.

A similar clause is not in the Platinum contracts, which could avoid the Signature and Trump delays, Gerard said.

While many developers attribute all the condo lawsuits to the real estate collapse, the plaintiffs' lawyer pointed to what he calls a long trail of condo-hotel flops.

"There has been a history of condo hotels going back to the 1980s. In 2000, with the real estate boom, they took off again," he said. "The condo hotels have not been well received by investors."

Original Story - Las Vegas Business Press