Retail giant Amazon is currently in the midst of a lawsuit against a local Denver real estate firm. Northstar Commercial Partners has been accused by Amazon of operating a “significant fraud and kickback scheme” in what perhaps greatly affected Amazon’s expanding operations in Virginia. The revelation of the lawsuit followed an FBI raid on Northstar CEO Brian Watson’s home and is the latest part of an ongoing saga of conflict between Amazon and the firm. The raid, which occurred on April 2, came after Watson and other defendants related in some way to Northstar were given notice that their roles in the Amazon project were being terminated due to evidence of their misconduct, though the connection between the raid and the alleged misconduct is not entirely clear as of yet.
A Project Gone Wrong
The project that Northstar Commercial Partners was executing for Amazon was the development of multiple data centers in the state of Virginia, specifically around what is known as the Dulles corridor. Data centers such as these are vital to Amazon’s continuing expansion, as data transmission and storage security are considered imperative to all modern enterprises. The issue arising from the project, as alleged by Amazon, is that Northstar apparently paid millions of dollars in kickbacks to obtain what were meant to be non-competitive contracts. Although Northstar allegedly paid those millions of dollars as an investment, their apparent return from the project would be tens of millions of dollars, though the money in question would be illicit due to the manner in which it was obtained.
According to Amazon, these kickbacks were paid in nine different transactions and were paid by Northstar to two different Amazon managers. These managers were allegedly responsible for making the decisions regarding the contracts involving real estate identification and selection in Virginia. the issue with this payoff, of course, is that it suggests a level of corruption under the selection of contracts in a project that was meant to be economically beneficial and furthermore creates question regarding the appropriateness of the contracts, and whether or not they are yielding the best results for the company. This would also suggest some possibility of employee theft on the part of those who sold the contract, which was not theirs to sell. Typically, employee theft would come in the form of embezzlement and the misappropriation of trade secrets, but the handling of the contracts suggests similar potential misconduct. Brian Watson’s attorney disputes Amazon’s account, suggesting that there has been a misunderstanding between the company and Northstar.
An Unclear Raid
Again, it is not clear whether or not the FBI raid was connected to the Amazon lawsuit. But in their legal documents, Amazon stated that the defendants, in this case, those related to Northstar, were under current federal criminal investigation. An email sent by Brian Watson to those associated with him indicated that he was being questioned by agents about accusations, but also claimed that he did not know about any potential fraud or misappropriation of funds and could not discuss it due to confidentiality agreements made with Amazon. According to Watson, his laptops and cell phone were confiscated during the raid.
In this same email, Watson alleges that there was a parcel of land placed under contract by two of his employees, which was placed under contract for $96 million and subsequently flipped for $116, which resulted in a $20 million profit over the span of a few weeks. But though Watson states that he fired the two employees in question and had them removed from the company business entirely, Amazon would counter that Watson was involved in the scheme in that he helped conceal it from Amazon’s notice, and was paid $5 million by those employees in order to assure his silence and cooperation.
Watson also alluded to another matter that could have potentially triggered the FBI raid. This would involve an individual paid by Northstar with Villanova Trust. This individual is paid $4,000 a month, apparently as an independent contractor, to research and make connections between Northstar and large companies that may have real estate needs, as indicated by Watson in the email. It would be this contractor that connected Northstar to Amazon. The Amazon deal would have netted Northstar around $60 million over the next few years. Indeed, there does seem to be some connection between Villanova Trust and the entire affair, though Amazon gives a different account of the relationship between Watson and the trust.
The Villanova Trust Issue
Villanova Trust is actually also named as a defendant in the lawsuit brought forth by Amazon and is described by Amazon as a “primary vehicle” for the alleged kickback scheme. Amazon indicates that Watson executed a kickback scheme on nine different leases with the sibling of an Amazon real estate transaction manager. This alleged scheme involved Northstar giving payments to a Villanova Trust account. The transaction manager mentioned above, as well as one other transaction manager, actually have withdrawn privileges with both of these accounts, and both Amazon employees have since been fired.
Amazon’s lawsuit also alleges that Northstar and the two former Amazon employees charged Amazon over $17 million in unjustified purchase and assignment fees on what is referred to in the lawsuit as the Virginia White Peaks property, which was worth $100 million. According to Amazon, these activities were all concealed through LLCs and contracts. The company was not aware of any alleged wrongdoing on the part of Northstar until a former Northstar employee reported them to Amazon, after which the company began its lawsuit. All of this is again refused by Watson’s attorney, who states that all procedures were standard and that the two former Amazon employees did not have withdrawing privileges to the Villanova Trust account, though Northstar did deposit funds into a Villanova Trust account.
These are not the only lawsuits that Northstar is currently facing. The company was also sued earlier this year by Balfour, a company based in Louisville, Colorado, over an assisted living facility in Michigan that was meant to be a collaboration with Northstar. Northstar’s former director of debt and equity sued Northstar in 2019 over an alleged $1 million owed to him, and that lawsuit remains ongoing. Watson has also recently been sued by Douglas Healy, who alleges that he sold Watson Class B membership interests in what is referred to as LMCLC Naperville LLC, but went without payment from Watson.
All four lawsuits are ongoing, but since the FBI raid, Northstar has lost its COO and CFO, leaving its future uncertain.