Investors worry Peru deals have gone south

As the world's financial markets crumbled last year, a suave young man driving a Bentley intrigued local investors with the prospect of outsized profits from real estate in Peru.

Jose Nino de Guzman Jr., now 26, filled a fancy South Lake Union office with a coterie of equally youthful sales executives. He threw a party for hundreds at McCaw Hall to celebrate his NDG Investment Group's elaborate new Web site, and entertained scores of potential investors on trips to Peru's capital, Lima. He told the business press there he would attract $200 million a year for new construction.

The very week the stock market hit bottom in March, NDG notified regulators it had raised almost $18 million, mostly in Washington, to build a dozen condominium and office projects in Lima.

Now investors are questioning what happened to their money.

Nino de Guzman's three top aides at NDG, who with family members invested more than $1 million in the projects, grew concerned last spring "about possible misdirection of funds by Mr. de Guzman," according to letters written in April by their lawyer to NDG's attorney.

They turned against their boss, contacting state and federal securities regulators and copying company files.

"At the moment there is a four alarm fire," wrote the trio's attorney, Christopher Wells, demanding a full accounting of NDG's finances.

The three executives — Darin Donaldson, Glenn Fulton and Philip Boos — declined to comment and referred questions to a committee representing many NDG investors. That group said in an e-mail that it is working to protect the investors, but gave no specifics, saying "the details are sensitive in nature."

One investor, who put $200,000 into two NDG deals, over the summer won a $340,000 summary judgment in an uncontested civil lawsuit asserting that the two projects do not exist and that Nino de Guzman "converted the invested funds for personal and/or improper use."

The company's office and Web site have since been shut.

In an interview this past week in Seattle, Nino de Guzman blamed the company's problems on the downturn in global real-estate markets. He said land has been acquired for 10 of the promised projects: "Some are just beginning, others are under way."

Asked about the allegations of financial impropriety, he said some money from the ventures did go to pay salaries and other proper expenses. An independent firm is examining the books of NDG and the sister company formed in Peru to develop the projects, Grupo Innova, and "it's unfair and unreal for anyone to allege anything until these audits are completed," he said.

Though some investors want their money back right away, he said, "millions of dollars in project-related expenses" are already spent and an immediate liquidation of the assets would yield much less. He said he's negotiating with the investor committee on a plan to complete the projects.

"All parties will have to make concessions," he said, but in time, "people will receive their money back and all this will be put to rest."

Some of Nino de Guzman's assertions, however, are contradicted by his company's own documents and its investors. And some of the claims made in NDG's marketing push were exaggerations at best.

The company's Web site said Nino de Guzman was previously "a top banker at U.S. Bank." In the interview, he said he spent most of his three years at the bank in Seattle as a personal banker helping consumers and small businesses, and then handled some small commercial real-estate loans. "My big value-add" was not banking expertise, he said, but experience and partners in Peru.

Nino de Guzman said in the interview that NDG launched with "a very aggressive business plan ... successfully raising millions of dollars every month."

He blamed the "market shock" of 2008 for causing a "drastic change in behavior" among Peruvian buyers as commercial financing became harder to find, causing "significant delays" in NDG's projects, he said. Also, Grupo Innova was ramping up from a handful of people to 46, and "had a very long, difficult learning curve."

Investors were promised returns of 45 to 59 percent in little more than a year, according to the lawsuit by investor Lincoln Beauregard, a Seattle attorney, who put $100,000 apiece into two projects, El Golf and Jorge Chavez. The Jorge Chavez project, said Nino de Guzman, is one of four that weren't actually begun because the limited liability company formed for the venture had only raised $400,000 of the needed $1 million equity investment.

"It's impossible to do what we planned if we're underfunded," he said, adding that he didn't return money to investors in those projects because he hoped to raise the remainder in Peru.

But a regulatory filing signed by Nino de Guzman in March says the Jorge Chavez project took in $1.05 million from 12 investors. Similarly, Beauregard's lawsuit lists the 11 other investors, with amounts adding up to $950,000.

Asked why the executives he hired would raise alarms about him, Nino de Guzman said they're trying to distance themselves from the company's difficulties. "Certainly it's very easy to put all the blame on one person," he said.

Nino de Guzman has his defenders, as well. Tom Ferlan, a Seattle mechanical engineer who invested in two NDG projects and visited Peru to inspect the properties, said he's "quite confident everything is aboveboard." He doesn't expect construction on the two projects to begin for at least three months, and completion could take another 18 months, he said.

"The promises that were initially made were difficult to attain even in a very positive economic environment, and since things turned south economically, it's just going to take more time," he said. "It's no different from all these projects in downtown Seattle."

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