By Chris Lane
By Jeff Balke
By Aaron Reiss
By Angelica Leicht
By Dianna Wray
By Aaron Reiss
By Camilo Smith
By Craig Malisow
Skinny, with short, thick, black hair, Cyrus is still shaking the sleep out of his system when someone says, "They're back again." Instantly, he knows who they are. Looking out the window, Cyrus can see the teal Geo Prizm parked in the little patch of woods right across the street. Tinted windows, with a reflective silver sun-visor spread across the windshield.
Cyrus asks his cousin, Mike Arjmandi, if he feels like using his video camera. Then he heads upstairs to get ready for school at the University of Houston. He throws on a polo shirt and jeans, and the two head outside. It's about 8:30 a.m. They walk casually across the street and Mike aims the camera on the license plate. When they get close, the driver's side window rolls down to reveal a young white guy with short dark brown hair, black V-neck shirt and gold chain. He's got a cell phone pressed to his right ear, and his eyes are fixed on something off in the distance.
"Are you one of Wells Fargo's or ORIX's goons?" Mike asks.
"No, I'm just..."
Mike cuts him off. "Are you here to intimidate Cyrus?"
"No, I don't even know you guys. I'm actually waiting on someone."
It had been like this for months, ever since Cyrus sued Wells Fargo and its loan servicer, Dallas-based ORIX, for fraud in a Dallas federal court, a filing Cyrus calls "the mother of all lawsuits for criminal violations of SEC (U.S. Securities and Exchange Commission) regulations." The strange cars had disappeared for a while, but now it looked like round two.
Around noon, Cyrus uploads the video clip to www.predatorix.com, the Web site through which he gives Wells Fargo and ORIX the finger. But the site, launched the day after Cyrus filed suit, goes beyond a simple f-you. Started in February 2006, it contains hundreds of pages from court cases, videos, PowerPoint presentations and newspaper articles detailing what Cyrus believes is a multimillion-dollar fraud the nation's fifth-largest bank and its loan servicer are pulling off on investors throughout the country. The logo is a wolf in sheep's clothing. Wells Fargo and ORIX are not pleased. Last December, the companies filed suit in a Dallas court to shut the site down. They deposed Cyrus, his father and his 14-year-old brother, who appeared not to understand the questions asked of him. But the companies lost round one — a preliminary injunction that would've pulled the plug posthaste.
Of course, posting the video of the private investigator didn't affect the lawsuit. But Cyrus hasn't seen the Geo Prizm since. Either the companies stopped hiring private dicks, or they've hired smarter ones.
Beginning modestly in the 1980s, the commercial mortgage-backed securities (CMBS) industry has blossomed into a $500 billion business.
In CMBS, investors profit from mortgage payments that are pooled together in a trust, which is held by a bank or other investment firm. The debts are then sold as bonds to public and private investors, who collect payments on the principal as well as interest. Performing loans are overseen by a master servicer; troubled loans are overseen by a special servicer.
These trusts are for serious, moneyed investors; pools typically range from hundreds of millions to over $1 billion.
The bonds are issued in different tiers called tranches, which are rated based on risk, duration and yield. Investors with the highest-rated bonds are paid first. Holders of lower-rated or unrated bonds, called B-pieces, are the last to be paid and face the highest risk in the event of a default. Therefore, B-piece buyers (usually investment firms) typically buy bonds for pennies on the dollar and can choose the special servicer. In most cases, the institutional B-piece buyer is also the special servicer. The thinking is, because B-piece buyers have the most to lose, they have the greatest incentive to make sure all the loans perform, helping not only themselves but all the investors in the pool.
In 2001, Cyrus's mother, Mondona Rafizadeh, a real estate manager, took out a loan on an apartment complex in Louisiana. The mortgage was part of a pool serviced by ORIX Capital Markets, part of Dallas-based ORIX USA. With a reported $4 billion in assets, ORIX USA is a subsidiary of the ORIX Corporation, a publicly traded company headquartered in Tokyo. Among its myriad investments and subsidiaries, the company is proud of its Japanese baseball team, the Orix Buffaloes.
In 2004, ORIX sued Cyrus's mother for defaulting on the loan. ORIX won a $10.8 million judgment, and the judge's ruling outlined instances of fraud among Mondona's employees, including falsifying rent rolls. Mondona subsequently filed for bankruptcy in Houston.
It wasn't the first time the Rafizadehs had been accused of being delinquent property owners. A few years earlier, a New Orleans office building owned by Cyrus's father was cited for multiple environmental hazards. When it came to crying foul against ORIX, the Rafizadehs didn't exactly have a clean record.
But Cyrus has a different story.
Barely 16 at the time ORIX foreclosed on his mother, Cyrus had already graduated from San Jacinto Christian Academy and spent a year at San Jacinto College studying business law. He then transferred to the University of Houston and started a software company with his cousins Tom and Mike Arjmandi. He'd been building computers since he was 12, a result of his father's success in the computer industry.
A follower of the Baha'i faith, Schumann Rafizadeh left Iran after the Baha'is became the target of religious persecution following the 1979 revolution. In the 1980s and 1990s, he built and sold a number of software companies, and he and his wife purchased commercial properties in Louisiana, Texas, Georgia, Ohio and Oklahoma. Growing up, Cyrus spent time working with both his father's technology concerns and his mother's real estate portfolio.
So whenever his mother received new demands from ORIX, Cyrus would pore over the paperwork and dig up whatever outside information he could find on the company. As far as Cyrus was concerned, ORIX was acting like an old-school bagman, extorting Mondona until she was wrung out.
He also took an interest in Wells Fargo, which by that time had been accused of predatory lending by the state of California, as well as by advocacy groups like the Association of Community Organizations for Reform Now (ACORN) and the Center for Responsible Lending. According to Cyrus's research, Wells Fargo, the trustee of the loan pools ORIX serviced, was complicit in ORIX's hard-nosed tactics. Ordinarily, a trustee would want all its loans to be performing, because of the greater fees generated by special servicers (who deal with troubled loans). But, according to Cyrus, Wells Fargo books the fees as grossly inflated assets. He discovered that, in the CMBS field, ORIX was notorious for vigorous litigation, even when it came to performing loans, as he believed his mother's was. By the time ORIX foreclosed on Mondona's property in 2004, a CMBS ratings agency lowered the company's rating for "aggressive litigation." According to the Commercial Mortgage Alert newsletter, the ratings agency, Fitch, stated that while the five other major special servicers had between 2 and 6 percent of their loans under litigation, ORIX had a whopping 27 percent. Moreover, Fitch stated, 74 percent of ORIX's 100 complaints involved performing loans. ORIX responded by stating, "Bondholders should question Fitch's clear conflict of interest in downgrading a servicer that has pursued rep and warranty claims against certain issuers that are clients of Fitch."
Commercial Mortgage Alert also reported that several issuers of CMBS bonds had asked investors not to do business with ORIX. The article stated that Lehman Brothers, Wachovia and UBS "have all asked investors to sign agreements aimed at preventing [B-piece] bonds from ending up in the hands of ORIX, according to multiple industry players."
The article did not cite anyone by name since, if true, the ploy would have been illegal. (When contacted for an update by the Houston Press on whether this scheme had any affect on ORIX, CMA Managing Editor Paul Fiorilla declined to comment. In 2005, a year after the story ran, ORIX sold its special servicing operation to a company called KeyCorp. Last January, KeyCorp's former senior vice president pleaded guilty to charges of fraud. He had embezzled $40 million from the company, most of which he used to buy his girlfriend gifts like a $5.6 million home in the Hamptons and a 12-carat diamond ring.)
Cyrus wanted to investigate how ORIX handled other loans it serviced. He knew he had to have information only investors have: distribution reports, servicing agreements — anything that showed how much money ORIX collected and how much went to investors.
Cyrus and his older cousin Tom were partners in a software company called Super Future Equities. In 2005, Super Future invested in the same trust that had controlled Mondona's Louisiana property. When he wasn't in class at San Jacinto Christian Academy, Cyrus was poring over financial documents and researching other suits ORIX filed against borrowers. What he uncovered, he says, was a scheme perpetrated by ORIX executives to foreclose en masse, even on performing loans — at the expense of other bondholders — and collect money not only for the company but for themselves, via a secret partnership.
ORIX sought a preliminary injunction in federal court to shut down Predatorix, claiming "business disparagement, tortious interference with contractual relationships, common law conspiracy and copyright infringement." ORIX said the site was merely a form of revenge. The company claimed Predatorix fell under commercial speech, which lacks the same protection as noncommercial speech. The injunction was denied last October.
So Cyrus is allowed to point the finger. ORIX is a predator, he says. And as far as he's concerned, the information on Predatorix reveals the biggest scam ever to hit the CMBS market.
ORIX wants its money. Period.
You can't blame a missed payment on a headache or a terrorist attack. Say you own an apartment building in Manhattan and one day, two passenger planes fly into the World Trade Center towers 200 yards north of your property. In a second, the windows blow out and the building's covered in soot.
Like everyone else in the vicinity, your tenants no longer have a home. And if they want to sneak back in for clothes or a keepsake, the streets are crawling with soldiers. Your building is empty for two months. You sink $230,000, in addition to $170,000 from insurance, into renovations.
When you reopen in December, only 20 percent of the tenants return, and the fact that they now live in a war zone means you can't charge them full rent. The company servicing your loan is getting antsy. You submit some proposals, something along the lines of, "You remember when those planes flew into those buildings right next door? Well, it kind of put us in a pickle. Any way we can restructure this loan?"
Nope. ORIX wants its money. Period. The company starts the foreclosure process. When the New York Daily News covers your story, you read a quote from ORIX CEO Jim Thompson.
"[The owners] saw it as an opportunity to capitalize on a situation," Thompson is quoted as saying, "to get something from a lender that they couldn't have otherwise gotten."
When The Economist weighs in, Thompson says, "The owners are contractually obligated to pay, and they are capable of paying."
The headline of the story is "Just Pay." And the company likes how it looks in the article so much that it creates a line of clothing called "Just Pay." (By the way, you can stop hypothesizing now, because this is all true.)
ORIX advertises its haute couture on its Web site:
"[ORIX] offers a distinctive line of 'Just Pay' attire reflecting [ORIX's] proud determination to recover, for the benefit of the lender/bondholders, everything that is owed, by all who owe it."
Also, "Photographs of 'Just Pay' attire worn in unusual or significant locations will be entered into a contest with winners receiving additional free merchandise and inclusion in [the] 2004 Just Pay Calendar."
Cyrus found this cached Web page and threw it and The Economist story on Predatorix. The next day, he got a letter from ORIX's Dallas attorneys, demanding he remove "false and libelous" statements, as well as "confidential and proprietary information" from Predatorix.
Although ORIX quickly removed its Just Pay attire from its Web site, the letter was not referring to the clothes. It was referring to 93 pages from a lawsuit ORIX filed against Wachovia Bank, which ORIX claimed was confidential.
It was one of many ORIX suits Cyrus would ultimately post on the site; suits filed both by and against ORIX, and all of them containing the same allegations: ORIX was a predator. But these claims were spread over myriad judicial districts. That fragmentation meant prospective investigators would have to sift through court filings everywhere ORIX did business, if they wanted to know what kind of company was servicing their loans. Predatorix bundled all the claims together and slapped on a bow.
What turned out to be perhaps the most important tidbit emerged from a suit ORIX and Wells Fargo filed against UBS Paine Webber for breach of contract in a Dallas district court in 2002. In 1999, UBS Paine Webber had sold mortgage loans it controlled to a trust ORIX managed. ORIX accused UBS of breach of contract by failing to deliver all the necessary loan documents.
In a deposition stemming from that case, ORIX executive Michael Wurst revealed the existence of a partnership among ORIX executives that had not been disclosed to other bondholders. Through this partnership, the executives were investing up to 60 percent of their own money in the same B-piece bonds ORIX was servicing.
In UBS Paine Webber's counterclaim, the company accuses ORIX of putting its own interest ahead of other certificateholders', since its principals had their own money on the line. In the event of a breach of contract that significantly affects the trust, special servicers are allowed to demand that contributors to the trust (like UBS Paine Webber) buy back their loans.
So UBS accused ORIX of manufacturing contract breaches in order to bully contributors into repurchasing loans. In its counterclaim, UBS states that ORIX CEO Jim Thompson told a UBS principal that he could avoid litigation by buying back its loans and find a "sleepy, shitty servicer" (presumably, a servicer that doesn't have its own line of clothing).
The counterclaim states: "Since the fall of 2001, ORIX has embarked upon an ambitious course of litigation against much of the mortgage loan industry," including Citibank, Lehman Brothers, Salomon Brothers and First Union. (The bitterness between ORIX and UBS Paine Webber is evident in an e-mail — posted on Predatorix — from ORIX CEO Thompson to a UBS Paine Webber representative in January 2001. "Don't be so quick to impugn our motives...it brings out our competitive instincts in this shop," Thompson wrote in his six-point list. Point five: "You still suck." Point six: "Jack still owes me the phone number of some babe he lined up for me.")
When ORIX sued Wachovia for not providing loan documents, Wachovia presented the same argument: "ORIX abuses its position as servicer to benefit itself as investor."
The thing was, the partnership was never identified by name. It was not until Cyrus got a copy of the sales agreement between ORIX and KeyCorp, the company that bought ORIX's special servicing operation, that he noticed an entity called OCM Operating, LP. He wondered what role that limited partnership played in the sale of ORIX's special servicing operation to KeyCorp. But when one of Cyrus's attorneys asked ORIX attorney Beth Jaynes for more information, Jaynes appeared to deny the partnership's existence.
In a July 2006 letter from Jaynes to Cyrus's attorney, Jon Bohn, posted on Predatorix, Jaynes writes: "You...describe this alleged 'partnership' as believed to be a 'Texas partnership'...No such partnership exists."
However, as Cyrus discovered through the Texas Secretary of State, there was indeed a Texas limited partnership by that name. And in a deposition four months later, ORIX executive Jeffrey Yarckin said OCM Operating did indeed exist, although he didn't know what it was.
Naturally, this all wound up on Predatorix, with Cyrus's commentary:
"It seems ORIX would rather lie and hope to get away with it rather than admit their guilt, as usual. Busted!"
This is not the first time that a member of the Rafizadeh family has alleged a conspiracy targeting their properties.
In 2001, hundreds of Louisiana state employees who worked in a New Orleans office building owned by the Rafizadehs complained of toxic mold, faulty elevators and nonworking heating and air-conditioning units. They said water leaking from pipes soaked asbestos-laden ceiling tiles, which fell onto their desks. After state agencies moved 700 workers out of the building, the workers filed a class-action suit that was eventually settled out of court for $4.25 million.
According to a series of articles by Greg Thomas of the New Orleans Times-Picayune, a fire marshal found that not all of the building's 44 stories had a sprinkler system. And in 1996 and 1998, the Rafizadehs were "cited by the Department of Environmental Quality for violating the building's asbestos management plan. The building was issued $130,000 in fines."
Schumann told Thomas that a piece of building material containing asbestos discovered in 1998 was planted. He said the environmental claims were part of a state conspiracy to declare a health emergency and quickly move its employees into a new building without having to go through a public bid procedure.
And then there is, of course, the finding of fraud regarding the apartment complex Mondona Rafizadeh owned in Louisiana. The judge in that case found Mondona's company guilty of falsifying rent rolls, not maintaining the property and missing payments. The judge's ruling also described odd behavior on the part of Mondona and Schumann.
"Mr. Rafizadeh became very evasive and nonresponsive during cross-examination," the ruling states. "Often there were long dissertations without ever answering the question posed."
As for Mondona: "Mrs. Rafizadeh also was unable to answer questions on cross-examination as posed. The court again and again instructed her to answer the questions. She felt she needed to say a lot of things and would not be denied."
And ORIX provided the Houston Press with photographs of the apartment complex that show conditions considerably below Four Seasons standards. Cyrus says those pictures were taken after ORIX took over the property, and show ORIX's neglect, not his mother's.
ORIX attorney Greg May would not comment on particulars of Predatorix, but he stated in an e-mail, "[ORIX] intends to vigorously pursue its counterclaim and maintains that Predatorix operates to harm ORIX Capital Markets' business reputation."
May also pointed out that, when Predatorix first launched, Cyrus implied that ORIX's tactics drove one borrower to an early grave. However, May pointed out, "in reality, the individual was alive and well and appeared at a court hearing." (While Cyrus has removed that person's name, he still dedicates the site in part to "the owner of...Empire Center Dallas, who died of a heart attack after his property was seized as reported in ORIX' servicing report. Also, Justin & Daren Ruffin, twin brothers that drowned in a seized apartment's pool." He gives no explanation or support for these claims.)
Furthermore, ORIX's motion to dismiss Cyrus's (Super Future Equities') lawsuit states: "Cobbled together from pleadings filed in litigation between ORIX Capital and various financial institutions, the [suit] is an ill-designed patchwork of allegations that fail miserably in their attempt to support viable causes of action against [ORIX]. Indeed, SFE's claims...collapse even under minimal scrutiny."
Cyrus says he didn't know what to expect when he launched the site. So it was a surprise when he got his first legal threat in March 2006.
"I got this e-mail one day from the attorneys and I didn't really know what it was. So I asked [his cousin] Tom, I'm like, 'What is this?' and he's like, 'They sued you.'"
By September, ORIX attorney Beth Jaynes was complaining about the snippets of deposition videos Cyrus posted on the site. She called them "misleading."
Jaynes did not return calls seeking more information about the videos' misleading nature — specifically, her deposition of Cyrus's 14-year-old brother, Darius. While Darius, like his brother, is probably a sharp kid, he looks absolutely baffled by Jaynes's questions. When she asks Darius questions about whether he was a bondholder in any of the trusts ORIX serviced, he asks her to repeat questions three, four, five times.
ORIX's team of attorneys also accused Cyrus of coming to their Dallas office, against a judge's orders. They said they had a witness who would testify to such. However, at the time Cyrus was supposed to have been in the office, he says he was at an academic club meeting, and dozens of people could back him up. Cyrus then announced on Predatorix he had a cloning machine for sale. The lawyers soon dropped that angle.
Cyrus works on the site a few hours each day, updating at home, between classes or at coffee shops. He wants people to take notice of this alleged scam. He wants to win his lawsuit. He wants to make CEOs sweat. He wants to be a tremendous pain in ORIX's ass. The first three remain to be seen.