Shopping center exec arrested on fraud charges
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The founder of an Arizona-based real estate company whose holdings include more than a dozen retail centers in central and northern Indiana has been arrested on two federal fraud charges related to an alleged $77 million stock manipulation scheme.
Indiana native Jonathan Moynahan Larmore, 51, who now lives in Punta Gorda, Florida, has been charged with one count of tender offer fraud and one count of securities fraud related to what investigators say was a scheme to artificially inflate the stock price of New York City-based co-working space company WeWork Inc.
Each of the two charges carries a maximum sentence of 20 years in prison.
The U.S. Attorney’s Office in the Southern District of New York announced Larmore’s arrest on Thursday.
Larmore, an Indiana University graduate who grew up in Fort Wayne, made his initial court appearance on the charges Thursday afternoon in Fort Myers, Florida and was released on an unsecured $3 million bond, court documents show.
Reached via text message, Larmore replied via text, “We will be fighting the allegations vehemently.”
In 2005 Larmore founded ArciTerra Cos. LLC, an Arizona-based real estate company with scores of retail centers across the country, including the Castleton Square and Castleton Commons strip centers near Castleton Square Mall, five other Indianapolis-area properties and eight sites in northern Indiana.
In November, the U.S. Securities and Exchange Commission filed a civil suit that accused Larmore, ArciTerra and several other entities of misappropriating more than $35 million from funds ArciTerra managed. Larmore used much of that money to fund “his lavish lifestyle of private jets, yachts and expensive residences” in Arizona, Indiana and Florida, the suit contended.
In December, a federal judge issued a temporary restraining order and asset freeze against ArciTerra and Larmore.
The SEC lawsuit also alleged that Larmore perpetrated a stock-manipulation scheme intended to artificially inflate the price of WeWork stock just days before that company filed for Chapter 11 bankruptcy protection. The criminal charges Larmore is now facing relate to the alleged WeWork scheme.
According to the criminal indictment that was unsealed Thursday, in October Larmore created Cole Capital Funds LLC to serve as “a vehicle for his fraudulent scheme.” Then, on Nov. 1-2, the indictment says, Larmore spent more than $775,000 buying tens of thousands of We-Work call options and hundreds of thousands of shares of WeWork stock.
A call option is a contract that gives the purchaser the right to buy shares of stock at a specified price by a specified date. If WeWork’s share price had increased significantly before his options expired he could have made “millions of dollars,” the indictment alleges.
On Nov. 3, the indictment says, Larmore published a press release announcing that Cole Capital intended to purchase 51% of WeWork’s outstanding shares for $9 per share—a premium of more than 700% over the stock’s actual price. WeWork stock had closed at $1.11 per share on Nov. 2.
Purchasing the shares at $9 each would have cost more than $77 million, according to the indictment, but Larmore and Cole Capital did not have “the intent or ability to execute the announced tender offer.” Rather, the press release was designed to drive up the value of WeWork stock so that Larmore could profit from his newly acquired call options and shares.
The scheme failed, the indictment alleges, because Larmore miscalculated how long it would take to have his press release published, and most of his call options expired about an hour before the release was published.
WeWork filed for bankruptcy on Nov. 6, and Larmore’s remaining WeWork call options expired Nov. 10.