Developer plans to buy 55 Public Square as DOJ wants to seize it over money-laundering accusations

CLEVELAND, Ohio — A prominent developer who owns several downtown Cleveland buildings plans to buy 55 Public Square, even as the Justice Department seeks to seize it amid accusations that an organization controlled by a Ukrainian oligarch bought it with laundered money.

Doug Price of the Willoughby-based K&D Group confirmed that he still plans to purchase the 22-story office building, owned by Optima Ventures of Miami. Optima and K&D, which also owns Terminal Tower and The Halle Building, among others, entered a contract on Dec. 22 for K&D to buy the building for $17 million.

The price is half of what Optima agreed to pay when it bought the complex that included the office building, parking garage and the now-closed John Q’s steakhouse in 2008. Optima is financially underwater in its ownership of the building.

The building’s sale is complicated by a forfeiture lawsuit the Justice Department filed last week in federal court in Miami. Federal prosecutors said 55 Public Square is one of several that Optima and its affiliates bought through ill-gotten money. Ukrainian powerbroker Igor Kolomoisky and his associates are accused of using Optima to launder tens of millions of dollars through U.S. real estate and businesses, with much of the money pouring into downtown Cleveland, court records show.

The lawsuit referenced Price’s agreement to buy the building and adjacent parking lot. It did not identify the buyer, though Price confirmed it was his company.

He said his lawyers are negotiating with the Justice Department to try to allow the sale to proceed.

“We need a clean title,” Price said. “We need some signoff that (the Justice Department) is satisfied. We view this as the necessary step to get this job done.”

An attorney for Optima did not return a voicemail. A spokeswoman for the U.S. Attorney’s Office in Miami, which filed the forfeiture lawsuit, did not respond to a text message.

Optima was once one of the largest landlords in downtown Cleveland, though its property interests in the city dwindled over the past decade. It still owns 55 Public Square, One Cleveland Center on East 9th Street and the nearby Westin Cleveland Downtown.

The hotel has also faced financial trouble, in large part because of the coronavirus pandemic’s economic impact on the hospitality industry, and a lender filed suit seeking foreclosure in October. Optima is fighting the foreclosure.

The FBI’s Cleveland office has investigated Optima for several years. Agents in August raided an affiliate’s offices at One Cleveland Center.

The Justice Department, which previously filed lawsuits to seize office buildings in Louisville and Dallas, said Kolomoisky helped siphon $5 billion from PrivatBank, a Ukrainian lender that he and Gennadiy Boholiubov opened in 1992.

According to court records, the men fleeced the bank out of loans from about 2008 to 2016, repaid the loans with more loans and then poured some of the money into U.S. properties. Ukrainian authorities uncovered the scheme in 2016 and the country’s national bank took over PrivatBank.

The forfeiture lawsuit filed Dec. 30 detailed a series of complex business transactions that led to 55 Public Square’s purchase. In the end, Optima paid $12.8 million upfront of the $34 million sale price and took out a mortgage for the rest.

Optima obtained $18.5 million in loans for the office tower since 2017, the lawsuit said. It defaulted on the loans last month, owing more than $14.5 million on the principal, interest and property taxes to 55 Bridge Lending of Cleveland.

Following the agreed-upon default, 55 Bridge Lending, which federal prosecutors describe as being “created by Optima’s attorneys and ... funded by unwitting Cleveland-based investors,” filed a foreclosure lawsuit. Lending group manager Sam Petros did not respond to a message seeking comment.

Jon Pinney, an attorney involved with 55 Bridge Lending, declined comment regarding the Justice Department’s characterization of the group.

Petros told Crain’s Cleveland Business that the lending group’s lawsuit was meant as “a friendly foreclosure” to ensure Optima goes through with the sale of 55 Public Square.

Price said about 40% of the building, completed in 1958 and in desperate need of upgrades, is occupied. It remains the home of First National Bank, which has its name displayed at the top of the building.

The developer, who pulled out of a deal with Optima in 2018 to buy the building, said he plans to turn the building’s bottom half into apartments. The top half will remain office space.

The developer plans to petition to have the building added to the National Register of Historic Places, which would help qualify a renovation project for state and federal tax credits.

Former federal prosecutor Jack Sammon said the Justice Department’s forfeiture case complicates the building’s sale but does not prevent it from happening. There are ways to ensure the government does not lose out on property or proceeds a judge later determines it is entitled to, such as putting the sale proceeds into an escrow account.

What it can do, however, is drag out the sale’s closing. Complex white-collar criminal investigations can take years for agents to investigate and prosecutors to shepherd through the court.

Still, “it makes sense from the standpoint of the government. They’re likely to get more money at arm’s length rather than a sale at auction,” Sammon said.