Feds Scrutinizing Gene Cauley’s Real Estate Deals

Federal subpoenas from a criminal investigation in New York have followed former Little Rock lawyer Gene Cauley back to Arkansas. Prosecutors are scrutinizing his real estate investments in connection with Cauley’s theft of $9.3 million in client funds.

Cauley recently waived indictment in U.S. District Court in Manhattan, pleading guilty to wire fraud for spending the money for his personal expenses and business ventures, and criminal contempt of court for lying about it.

Cauley surrendered his passport and was given an extension to June 10 to post $5 million bail, secured by $3 million in real estate and $2 million secured by three financially responsible people. Sentencing is scheduled for Sept. 10.

Investigators from the U.S. Attorney’s Office in New York are interested in Cauley’s real estate holdings beyond his ability to post bond. They are gathering subpoenaed real estate records to untangle Cauley’s web of limited liability companies and examine his assets with an eye toward restitution and more.

What they discover will help answer questions about liquidating assets to repay clients and whether client funds were used in connection with his properties. In securing the bond, Cauley is to use only property “not tainted by the defendant’s use of misappropriated client funds.”

If the examination goes deep enough, it could also fix a net value on Cauley’s leveraged multimillion-dollar portfolio.

Kevin Huchingson, principal at the Little Rock office of Colliers International, is listing several Cauley-owned properties for sale. Primarily undeveloped commercial sites in west Little Rock, the properties were on the market months before Cauley’s legal problems became public knowledge.

Huchingson is aware of the rumored “Cauley list,” a detailed roster of real estate holdings marked for sale. He’s had more than a few inquiries about it from commercial realtors and prospective buyers.

“I have no list, but I have had people calling me up and ask about it,” Huchingson said.

Real estate watchers anticipate a sell off of Cauley’s stakes in various properties. His defense lawyer, John Wesley Hall Jr., told the Arkansas Supreme Court in a May 9 e-mail that “Cauley is liquidating assets to make restitution” and that he “plans on doing so even if he has to sell assets at a loss.”

During the past 90 days, Cauley’s name has cropped up in several real estate transactions in Little Rock.

Mid-May saw him signing on deals that included the names of two other founding investors in Little Rock’s Centennial Bancshares Inc., Steve Wortman and Rick Ferguson. Cauley, Wortman and Ferguson were the three biggest stockholders in Centennial, owning a combined 78 percent when it was sold in 2008 to Conway’s Home BancShares Inc.

Most of the real estate filings were tied to property securing two $4.5 million funding agreements with Centennial Bank of Conway (formerly Home BancShares’ First State Bank).

The two mortgages appear to split largely along the lines of property associated with Cauley and property controlled by Wortman, president of Little Rock’s Kaufman Lumber Co. Wortman couldn’t be reached for comment.

Fergusons name appears only among the paperwork in connection with LRG Investments LLC.

LRG Investments and Cauley’s Center 3 Investments LLC own a 2-acre undeveloped office site on Executive Center Drive in west Little Rock used to help secure a $4.5 million mortgage.

Mixed in with the mortgage filings is a reported $2.1 million sale of a 6,500-SF home in west Little Rock’s Chenal Downs neighborhood. Steve Wortman and his wife sold the house to Generic MSI Properties LLC.

Cauley signed on behalf of Generic MSI when the house was rolled in to help secure a separate $4.5 million loan. Under the Wortmans’ ownership, the home secured a stand-alone $1.1 million mortgage. The property was listed for sale at less than $1.6 million in early March.

The Wortmans, who live in the Valley Falls Estates neighborhood that Ferguson developed, took ownership of the house in a transaction valued at $2 million on July 13, 2006. The seller was Ferguson’s Waterview Estates LLC.

The property was listed for $1.95 million on Aug. 17, 2006. On June 26, 2007, the asking price was reduced to $1.7 million.

The property was taken off the market on Jan. 2, 2008. It was once again listed on Jan. 25, 2008. That $1.59 million listing expired on March 2, 2009.