Federal investigators last week identified the majority development partner in a troubled condominium project as the central figure in a mortgage fraud scheme involving about one-quarter of the units sold in a downtown Minneapolis, Minnesota, building. In an affidavit filed in U.S. District Court in St. Paul, MN, IRS agents say Brett ThielenJJT Development, owns 50% of Sexton Lofts, LLC, which developed the project.

The Sexton has 123 units, but fewer than 50 were ever sold, according to local property records.

The affidavit says Thielen laundered proceeds from the scheme by having his lawyer, Ben Houge, wire money to an attorney in Australia, who then wired the money back to Thielen and others taking part in the scheme. The Australian attorney also wired money on Thielen’s behalf to buy $700,000 worth of stock in two U.S. companies:

• Digital Town, Inc.: a Burnsville, MN-based company that is attempting to develop a nationwide network of online communities for high school alumni, boosters, students and local citizens.
• ESPRE Solutions: a Plano, TX-based videoconferencing company.

The IRS filed its affidavit to seek a warrant to seize the stock and other assets that it says were proceeds of the scheme. And while court documents do not specify a total amount of fraudulent proceeds, it is alleged that attorney Houge sent more than $2 million to his counterpart down under.

The U.S. Attorney in charge of the case declined to comment on whether Thielen, Houge or anyone else will be charged in connection with the scheme outlined in the court documents.

According to the affidavit, the fraudulent transactions began with Thielen providing cash to buyers, who would then hold purchase agreements for specific units. The titles would be transferred to Thielen, who then re-sold the units at inflated prices to new buyers on the same day or soon after the original sales. The higher resale prices were based on false appraisals and income information for the new buyers. Thielen would then get the fraudulent proceeds from the re-sales, splitting the money with others taking part in the scheme, the affidavit said.

One person already has been convicted of mail fraud and conspiracy for their role in the scheme outlined in the affidavit. As part of a guilty plea, Joseph Huebl, 28, agreed to cooperate with an investigation by the U.S. attorney’s office.

The charges of mortgage fraud are the latest of several financial and legal troubles to surface at the Sexton condo project, which went into foreclosure last fall. Condo owners have sued the developers for failing to complete the project, including building a parking ramp whose cost was included in the price of some units. An unpaid contractor has placed a $5 million lien against all the units in the building.