Cincinnati developer Ray Schneider filed for bankruptcy. One of his creditors, with whom he is involved in another litigation, is now asking the court to appoint a trustee.
Schneider, president of Circle Development filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court of the Southern District of Ohio on March 2, claiming assets between $10 and $50 million. He also claimed $100 million to $500 million in liabilities.
Chapter 11 bankruptcy occurs when a business or an individual wants to reorganize its assets to pay creditors while still in operation. This is in contrast to Chapter 7 bankruptcy where assets are sold to pay creditors partially.
A court document listing Schneider's 20 biggest claims and creditors revealed that the claims totaled over $177 million. An additional unsecured claim of more than $7.2 million was also included.
Schneider refused to comment on bankruptcy filing.
According to Ohio Secretary State business filings the business entities linked to the money owed creditors were connected to various development projects in Cincinnati.
According to Business Courier's research, Circle Development is the eighth largest commercial real estate developer in Greater Cincinnati. In 2022, it had 1,36 million square foot of locally-owned and developed property.
Circle Development has a portfolio that includes pet resorts and self-storage units, as well as multifamily housing. The company is also behind the Red, Schneider’s first apartment complex in Madisonville.
Schneider is preparing for his next residential project: The Blue. The $75 million mixed-use project in Blue Ash will help transform downtown at the northwest corner of Kenwood Road and Cooper Road.
Huntington National Bank is one of Schneider's creditors. In a recent filing, it stated that the bank owes approximately $27,000,000. The bank requested an urgent order to appoint trustees, alleging that Schneider fraudulently transferred upwards of $60 million in order to avoid Huntington’s collection efforts. A fraudulent conveyance is a way to reduce or avoid debts by transferring assets or money to another company or person.
In its emergency motion, the bank stated that 'the amount fraudulently transferred could be as much as $60,229 300'. This is an absolutely staggering amount.
Huntington stated in its motion that it did not yet have all the details about the alleged fraudulent conveyance. Schneider, according to the bank, filed for bankruptcy partly in order to interfere with Huntington's fraud investigation.
Huntington claims in its motion that Schneider has engaged in fraudulent behavior.
Schneider's balance-sheet shows an 'extraordinary' amount of new secured loan with no increase in the other asset classes.
Huntington claims that in its motion, "there is a clear risk that he'll continue to hide and move his assets away from creditors," which proves the need for an independent trustee. The bank also claims that an 'impartial trustee' is required to take action, including suing Schneider and his family members. This is because some of Schneider's assets have likely been transferred to family or family gift trusts.
Schneider, in a written response to Huntington’s motion filed March 13, objected the request for a trustee.
In Schneider's response, he recounts the details of a fraud scheme for which Harold Sosna is currently serving 42 months in prison. Schneider is involved in a separate lawsuit with Huntington Bank to try and recover lost funds. Schneider argued that if he hadn't lost millions of dollars in Sosna’s scheme, he would have had more than enough to repay Huntington.
Sosna plead guilty to fraud in October 2020 for causing Pennsylvania's S&T Bank, a $59 million loss in a scheme that involved checks deposited without having the funds available.
Schneider claims that the bank failed to recognize red flags, which allowed Sosna’s fraud, and ultimately cost Schneider millions, in his lawsuit filed against Huntington on February 28.
The lawsuit continues. Schneider requested that the case be referred to Hamilton County Common Pleas judge Christian Jenkins, who had handled previous cases relating to Sosna’s check-kiting. This was filed on April 21, 2014.
Schneider claims in his response that his familiarity with the assets of his business should allow him to maintain control over them to maximize the recovery for his creditor. He also claims that the reasons for his removal, such as fraud, dishonesty or incompetence, are not due to his own mistakes, but rather those of Sosna.
"(Schneider)'s ability to develop and maintain over 70 separate entities speaks of his extreme competency." If the debtor had been incompetent his businesses would have failed years ago', states the response submitted by Schneider's attorney, Eric Goering.
Schneider denies that the transfer of assets is fraudulent. Schneider, 72 years old, started the estate planning process in 2018 According to the response, it took some time to comply with IRS regulations before moving assets into trusts created as part of estate planning.
According to the response, only two assets were removed from the estate plan. Both assets were sold.
The response states: 'Fraud committed by the debtor does not exist here'
General Electric Credit Union is another of Schneider's creditors that has also objected to the appointment of a trustee. They have called the move "premature" and argue it appears as a 'inappropriate' extension of the ongoing litigation regarding Sosna’s fraud scheme.
GE Credit Union stated in its objection that the administrative costs of appointing a trustee could be substantial. This would complicate the matter and make it harder for Schneider to reach a settlement with his creditors.