SEC v. Robert A. Kasirer; Jerold V. Goldstein; Joel T. Boehm; James E. Iverson; and Victor P. Dhooge, Northern District of Illinois — Complaint

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
SECURITIES AND EXCHANGE
COMMISSION,
ROBERT A
. KASIRER
JEROLD V. GOLDSTEIN
JOEL T. BOEHM
JAMES E
. IVERSON, AND
VICTOR P
. DHOOGE
Defendants.
COMPLAINT
Plaintiff, Securities and Exchange Commission ("Plaintiff' or "SEC") alleges
:
SUMMARY
1.
	
From February 1996 through August 1999, the Defendants, acting in concert,
fraudulently offered and sold over $131 million of municipal revenue bonds to members of the
public
. The Defendants offered and sold the bonds in question through a series of eleven
offerings underwritten by the now-defunct, Minnesota firm of Miller & Schroeder Financial, Inc
.
("Miller & Schroeder")
. The Defendants sold the bonds to more than 1,800 investors residing in
36 States.
1
CIVIL ACTION
FILE NO.
Plaintiff,
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2.
	
The purported purpose of each bond offering was to finance the development of a
specified healthcare facility by Heritage Housing Development, Inc
., a company effectively
controlled by Defendant Kasirer ("Heritage")
. The Heritage facilities consisted of various senior
assisted living facilities and a hospital
. All together, there were ten Heritage facilities located in
the States of Texas, Florida, Illinois and California
.
3.
	
The Defendants represented in offering documents that the proceeds from each
bond offering would be used to finance one specific healthcare facility
. In fact, however, from
the very beginning the costs of developing the Heritage facilities, including payments to
Defendant Kasirer and some of his family members, outstripped the proceeds from the facilities'
respective bond offerings
.
4.
The Defendants covered the resulting cash shortfalls by operating a type of Ponzi
scheme, commingling bond proceeds and diverting bond proceeds from more recent offerings to
pay the expenses of earlier projects. Eventually all ten of the Heritage facilities failed
.
5.
	
The diversion of bond proceeds from one project to another went on for three
years
. The Defendants did not mention their diversion of bond proceeds in any of the offering
documents, and instead falsely represented that the bond proceeds from each offering would be
used only for that respective Heritage facility. Miller & Schroeder continued to sell the Heritage
bonds to investors until early August 1999. The following month, September 1999, the
Defendants' commingling and diversion of bond proceeds was publicly disclosed. Beginning in
February 2000, the Heritage facilities ran out of money and defaulted on their obligations to the
bondholders
. Presently, all the Heritage facilities are in default on their bonds.
2

6.
	
Defendants Kasirer and Goldstein, the primary architects of the scheme,
controlled Heritage
. Defendants Kasirer and Goldstein personally directed the commingling and
misapplication of bond proceeds
. Defendants Iverson and Dhooge, representatives of Miller &
Schroeder, managed the underwriting of the various bond offerings, despite their knowledge that
bond proceeds were being wrongfully commingled and diverted
. Defendant Boehm, an attorney
who acted as counsel for Miller & Schroeder in the bond offerings, issued favorable legal
opinions despite his knowledge that bond proceeds were being wrongfully commingled and
diverted. Defendants Kasirer, Goldstein, Boehm, Iverson and Dhooge, acting knowingly or with
a reckless disregard for the truth, all took part in writing, reviewing, or disseminating bond
prospectuses ("Official Statements") which misled investors with regard to, among other things,
Defendant Kasirer's role in the affairs of Heritage, the financial condition of the Heritage
facilities, and the true uses to be made of the bond proceeds. All the Defendants personally
profited from the scheme.
7.
	
Defendants Kasirer, Goldstein, Boehm, Iverson and Dhooge, directly and
indirectly, have engaged in and, unless enjoined, will continue to engage in, acts, practices and
courses of business which constitute and will constitute violations of Section 17(a) of the
Securities Act of 1933 ("Securities Act") [15 U
.S.C.§77q(a)], Section 10(b) of the Securities
Exchange Act of 1934 ("Exchange Act") [15 U.S.C. §78j(b)] and Rule lOb-5 [17 C
.F.R.
6240.1 Ob-51 promulgated thereunder.
8.
Plaintiff brings this action to enjoin such acts, practices and courses of business,
and for other equitable relief, pursuant to Section 20(b) and 20(c) of the Securities Act [15 U
.S.
C §§ 77t(b), 77t(c) and Sections 21(d), 21(e) of the Exchange Act [15 U
.S.C. §§78u(d),78u(e)].
3

JURISDICTION
9.
The SEC brings this action pursuant to the authority conferred on it by Sections
20(b) and 20(d) of the Securities Act [15 U
.S.C. §§77t(b) and §77t(d)], and Sections 21(d) and
21(e) of the Exchange Act [15 U
.S.C. §§78u(d) and 78u(e)].
10.
	
This Court has jurisdiction over this matter pursuant to Section 22(a) of the
Securities Act [15 U.S.C. §77v(a)] and Section 27 of the Exchange Act [15 U
.S.C. §78aa].
11.
	
The acts, practices and courses of business constituting the violations herein have
occurred within the jurisdiction of the United States District Court for the Northern District of
Illinois and elsewhere.
12.
Defendants, directly and indirectly have made use of the mails and of the means
and instrumentalities of interstate commerce in connection with the transactions, acts, practices
and courses of business alleged herein in the Northern District of Illinois.
13.
	
There is a reasonable likelihood that the Defendants will, unless enjoined,
continue to engage in the transactions, acts, practices and courses of business set forth in this
Complaint, and transactions, acts, practices and courses of business similar in purport and object.
THE DEFENDANTS
14.
	
At all times relevant to this Complaint, Defendant Kasirer, who is 55 years old,
lived in or near Beverly Hills, California. Defendant Kasirer, who is an attorney, describes
himself as a consultant who assists people in financings and various projects. Defendant Kasirer
effectively controlled Heritage. He exerted control over Heritage management, and he was able
to direct the diversion of bond proceeds
. Defendant Kasirer managed the Heritage facilities at
issue herein, first through a subsidiary of a company named Iatros Health Network
. Inc. and then
4

from June 1, 1997 until August 1, 1999, through a company owned by Kasirer-Health Care
Holdings, L
.P. ("Health Care Holdings"). In the mid-1980's, Kasirer formed CongreCare
Retirement Housing Corporation, through which he developed and managed at least three
retirement facilities. Two of the facilities were financed by municipal bonds, and one was HUD
financed
. The HUD-financed facility ultimately went through Chapter 7 liquidation. Both of the
other facilities, one in Colorado and one in Illinois, defaulted on their bond payments
.
15.
	
At all times relevant to this Complaint, Defendant Goldstein, who is 63 years old,
lived in or near Encino, California
. Defendant Goldstein's involvement with Heritage began
when he incorporated the Company in 1993. Defendant Goldstein, who is an attorney, served as
outside counsel to Heritage from its inception until July 1998 when he was hired by Heritage as
General Counsel, Executive Vice President and Chief Operating Officer
. The following month
he was made President of Heritage. At all times relevant to this Complaint, Defendant Goldstein
attended Heritage Board meetings. He also reviewed drafts of the Heritage Official Statements
and other offering documents prior to the issuance of the bonds at issue in this Complaint
.
16.
	
At all times relevant to this Complaint, Defendant Boehm, who is 57 years old,
lived in or near Carlsbad, California
. Boehm, who is an attorney, served as counsel to the
underwriter, Miller & Schroeder, for nine of the bond offerings at issue in this suit and as bond
counsel for one of the bond offerings at issue in this suit
.
17.
	
At all times relevant to this Complaint, Defendant Iverson, who is 68 years old,
lived in or near Agoura, California. Until August 1997, Defendant Iverson owned 49% of the
stock of Miller & Schroeder and served as the firm's Executive Vice President and Chairman of
the Board of Directors
. In or about August 1997, Miller & Schroeder was sold to a group of
5

former and outside shareholders. After August 1997, Defendant Iverson was a Vice President
and 1/10 of 1% shareholder of Miller & Schroeder
. At all times relevant herein, Defendant
Iverson was primarily responsible for supervising the public finance underwriters in Miller &
Schroeder's Solana Beach, California office.
18.
	
At all times relevant to this Complaint, Defendant Dhooge, who is 59 years old,
lived in or near Solana Beach, California. At all times relevant herein, Dhooge worked in the
public finance department of Miller & Schroeder's Solana Beach office and served as a vice
president of the firm. Defendant Dhooge was the individual in the underwriting department at
Miller & Schroeder responsible for selling the Heritage bonds to the public.
OTHER RELEVANT INDIVIDUALS INVOLVED
19.
	
Emery Rubin, now deceased, founded Heritage in 1993. Offering documents for
the first several bond offerings at issue herein identify Rubin as a senior consultant to Heritage
;
he functioned effectively as Heritage's President. On August 18, 1997, the Heritage Board
elected Rubin to the office of President of Heritage. Rubin and Kasirer had a long-term
relationship. Rubin babysat Kasirer when Kasirer was a child. Rubin and Kasirer also had prior
business dealings before the Heritage projects as Rubin was also involved in the CongreCare
projects. The Heritage Board terminated Rubin by resolution on February 18, 1998.
ENTITIES INVOLVED
20.
	
SRC Holding Corporation f/k/a/ Miller & Schroeder Financial, Inc. ("Miller &
Schroeder") was incorporated in Minnesota in 1963, and was a registered broker-dealer,
specializing in underwriting and dealing in municipal securities. Miller & Schroeder was
headquartered in Minneapolis, Minnesota, but during 1996 through 2000, the firm also had
6

underwriting and sales staff in its branch office in Solana Beach, California
. From 1996 through
August 1999, Miller & Schroeder was responsible for underwriting the municipal bond
financings of health care facilities to be developed by Heritage. In December 2000, Miller &
Schroeder discontinued its retail financial services, transferring that business to another firm
.
Nine months later, in September 2001, Miller & Schroeder sold most of its remaining business to
a group of investors, giving up its name to the new company and renaming what remained of the
old company Securities Resolution Corporation
. That company applied to withdraw from
registration as a broker-dealer and filed for Chapter 7 bankruptcy liquidation in January 2002.
This bankruptcy is currently pending in the Minnesota.In re: SRC Holding Corporation, f/k/a
Miller & Schroeder, Inc.,BKY Nos. 02-4-286-02-40286 (Bankr. Dist. MN).
21.
	
Heritage Housing Development, Inc. ("Heritage") was formed in 1993 as a
California not-for-profit corporation, based in Los Angeles
. At all times relevant to this
Complaint, Heritage consisted primarily of a President, Secretary, Controller and a Board of
Directors. Heritage had few employees
. Instead, Heritage relied on outside people, such as
Goldstein. Heritage's stated purpose was to acquire, develop, and operate healthcare facilities
serving the elderly, and particularly those suffering from Alzheimer's disease. Heritage bought
and renovated existing healthcare facilities in various parts of the country. In most cases,
Heritage created a separate non-profit affiliate company to own and operate each facility
("Heritage Affiliate")
. Heritage shared the same board of directors with and was the sole
member of each non-profit affiliate.
22.
	
latros Health Network, Inc. ("latros"), began business in 1992 as Gracecare
Health Systems, Inc., but changed its executive team and its name in 1994
. latros and its
7

subsidiaries owned, leased, and managed long term health care facilities in a number of eastern,
mid-south, and western states. In 1995, latros acquired Kasirer's respiratory rehabilitation
company, King Care Respiratory Services, Inc., whereupon Kasirer became a member of latros'
board of directors
. latros' subsidiary IHN/Health Services Group, Inc.("IHN"),managed the
early Heritage facilities until Heritage terminated the contract on June 1, 1997
. Thereafter,
Health Care Holdings managed the Heritage facilities.
23.
	
Health Care Holdings,L.P.,
was a manager of specialty healthcare facilities
formed by Kasirer as a Nevada limited partnership in 1994, and converted to a limited liability
corporation in 1998 (together, "Health Care Holdings")
. Kasirer was the owner and chief
executive officer of Health Care Holdings, which managed the Heritage facilities at issue herein
from June 1, 1997 through August 1, 1999.
THE DEFENDANTS' FRAUD
The Heritage Bond Offerings
24.
	
From February 1996 through August 1999, various affiliates of Heritage raised
over $131 million through eleven public offerings of municipal revenue bonds (the "Heritage
bonds"). The Heritage bonds were issued for the stated purpose of providing financing to
Heritage and its affiliates for the acquisition, renovation, and operation of healthcare facilities
.
The eleven Heritage bond offerings financed ten different facilities, located in Texas, Florida,
Illinois and California. The facilities were to provide care to geriatric patients and persons
suffering from Alzheimer's disease. Miller & Schroeder sales representatives sold the Heritage
bonds. These eleven offerings are summarized below
:
8

25.
	
The Heritage bonds were revenue bonds
. That is, the Heritage bonds were not
backed in any way by the credit or taxing power of the issuing municipal authorities, or of the
relevant states or any of their political subdivisions or agencies
. Rather, because the Heritage
issues were revenue bonds, the primary source of funds available to fund interest and principal
payments to the bond holders was to be the revenue generated from the operation of the
respective Heritage healthcare facilities.
26.
	
The Heritage bonds were generally structured such that each municipality or
municipal corporation that issued bonds (the issuer) agreed to loan the bond proceeds to the
Heritage Affiliate responsible for the facility being funded
. At the same time, the issuer assigned
the loan to the indenture trustee (the "Trustee"). The bond proceeds were turned over to the
Trustee, which thereafter released the proceeds to the Heritage Affiliate as needed, in response to
requisitions, or draw requests, submitted by the Heritage Affiliate[u51.. As required by the loan
9
FacilityLocation
Series ASeries BSeries C
Total
Danforth GardensTexas City6,440,000855,00
7,295,000
Sam Houston GardensHouston9,265,000
1,105,00010,370,000
St. Joseph Gardens
Fort Worth11,745,0001,675,000
13,420,000
House of SarasotaSarasota10,740,000
1,565,00012,305,000
Duval GardensAustin
9,190,0001,900,00011,090,000
Heritage House of ChicagoChicago15,750,0001,525,000
17,275,000
Heritage Hospital
Rancho
13,900,0008,430,000
22,330,000
St. Joseph Gardens
Cucamonga
Fort Worth2,010,000
2,130,0002,715,0006,855,000
Eastwood GardensHouston8,775,0002,545,000
11,320,000
House of SeminoleSeminole5,820,0001,410,000
7,230,000
Valley GardensBrownsville
9,785,0001,950,00011,735,000
Total:115,450,00026,110,0002,715,000
131,225,000

agreement, the Heritage Affiliate was to make monthly payments to the Trustee sufficient to pay,
when due, the principal and interest on the bonds[u6]
. At each bond closing, Miller & Schroeder
entered into a "firm commitment" underwriting agreement with the issuer, by which Miller &
Schroeder agreed to purchase the entire bond issue at one time, for later re-sale to investors[u7].
27.
	
Miller & Schroeder's sales representatives in its Minneapolis, Minnesota and
Solana Beach, California offices sold the Heritage bonds to members of the public.
28.The Heritage bonds were purchased by approximately 1,800 individual investors
located in thirty-six different states. In addition, certain of the Heritage Bonds were purchased
by a Milwaukee-based investment adviser and fund manager.
29.
	
Six of the facilities underlying the Heritage bonds were located in Texas.
(Danforth Gardens, Sam Houston, St. Joseph Gardens, Duval Gardens, Eastwood Gardens and
Brownsville). Two of the facilities underlying the Heritage bonds were located in Florida
(Seminole and Sarasota). One facility was located in Illinois (Chicago), and one facility was
located in California (Rancho).
30.
	
Each of the Heritage projects experienced cost overruns and construction delays.
The Heritage Bond Offering Official Statements
31. An Official Statement was prepared and distributed to investors throughout the
country for each of the Heritage bond offerings. An Official Statement is the municipal bond
version of a prospectus. Among other things, an Official Statement for a new issue discloses to
investors information about the bonds and the issuer of the bonds. The Heritage bond Official
Statements were sent to brokers and to persons who purchased the Heritage bonds
.
10

32.
	
The Heritage bond Official Statements contained, among other things, sections
describing the Bonds, the Annual Debt Service Requirements, the Plan of Financing, the
Estimated Sources and Uses of Funds, the Forecasted Debt Service Coverage, the Sources of
Payment and Security for the Bonds, the Financial Covenants, The Facility, The Issuer, The
Company, the Management of the Facility and Bondholder's Risks
.
33.
	
Defendant Kasirer played a leading role in the drafting of each of the Heritage
bond Official Statements. Defendant Kasirer was one of the primary drafters of the Official
Statement for the first Heritage Bond offering, the offering for the Danforth, Texas facility
. For
each of the subsequent Official Statements, Defendant Kasirer instructed a Health Care Holdings
employee regarding changes to be made from the previous Official Statement
. Defendant
Kasirer then reviewed and approved each Official Statement before it was distributed to
investors.
34.
	
Defendant Boehm acted as the Underwriter's Counsel for nine of the Heritage
Bond offerings-those for the Danforth Gardens, Sam Houston, St. Joseph Gardens, House of
Sarasota, Duval Gardens, Eastwood Gardens, House of Seminole and Valley Gardens projects
.
Defendant Boehm also served as Bond Counsel for the second Heritage Hospital ("Rancho")
offering. As Underwriter's Counsel, Defendant Boehm was responsible for preparing the
Heritage bond Official Statements. Defendant Boehm also was responsible for performing due
diligence regarding the Heritage bonds
. As Bond Counsel, Boehm was responsible to ensure that
the second Heritage Hospital offering was validly issued under state bond law
. Defendant
Boehm provided information for and reviewed each of these Heritage bond Official Statements
before it was distributed to investors.
II

35.
	
Drafts of the Heritage bond Official Statements were distributed to Defendants
Iverson and Dhooge for their review. Defendant Boehm asked Defendants Dhooge and Iverson
to review and make changes to the Official Statements
. As representatives of the underwriter,
Defendants Dhooge and Iverson had the ability to request changes in the language of the
Heritage Official Statements.
36.
	
Drafts of the Heritage bond Official Statements were distributed to Defendant
Goldstein for his review. For the first eight Heritage Official Statements (Danforth Gardens,
Sam Houston Gardens, St
. Joseph Gardens, House of Sarasota, Duval Gardens, Heritage House
of Chicago, Heritage Hospital, St. Joseph Gardens II), Defendant Goldstein served as Heritage s
outside counsel
. Defendant Goldstein signed the last three Heritage Official Statements
(Eastwood Gardens, Heritage House of Seminole, and Valley Gardens) on behalf of Heritage
.
As to the last three Official Statements, Defendant Goldstein represented on behalf of Heritage
that "the Company has reviewed the information contained herein and has authorized all such
information for use within this Official Statement." Defendant Goldstein understood that his
signature meant that the representations contained in the Official Statements relating to Heritage
were correct.
Defendant Kasirer Profited from the Heritage Bond Offerings
37
	
Defendant Kasirer's financial interest in the Heritage projects began with his
ownership interest in the properties that the Heritage Affiliates purchased for each of those
projects. In the mid-1990s, Kasirer resolved a prior dispute with Columbia/HCA Health
Network, Inc. ("Columbia"), through an agreement under which Columbia agreed to transfer
12

several closed healthcare facilities to a company Defendant Kasirer owned
. Defendant Kasirer
then turned to Heritage and negotiated a series of complex agreements with Defendant Goldstein,
Rubin and the Heritage Board on behalf of Heritage. Taken together, these agreements created a
mechanism through which the Heritage Affiliates purchased healthcare facilities from Kasirer's
company for eight of the projects financed by the bonds at issue in this Complaint
. The Heritage
Affiliates used bond proceeds from the offerings at issue in this Complaint to make those
purchases. As a result of the agreements with Heritage and its affiliates, Defendant Kasirer
profited from each of those purchases.
38.
	
Defendant Kasirer also profited from the Heritage bond offerings in that Heritage
selected Kasirer's company, Health Care Holdings, to manage the facilities financed with the
proceeds of the Heritage bond offerings.
39.
	
Defendant Kasirer's family also benefited from the Heritage bond offerings.
Defendant Kasirer's wife, Debra Kasirer, was paid, under her maiden name, as an interior design
consultant by one of the Heritage Affiliates, although she performed no work for that Affiliate
.
Moreover, Golden State Health Centers, Inc., of which Kasirer's father was the Vice President
and Chief Operating Officer, was hired by a Heritage Affiliate to be the supervisory manager of
the Sarasota project
. Defendant Kasirer's father was unaware of this arrangement.
40.
	
Defendant Kasirer also received money from the underwriter's counsel,
Defendant Boehm
. On or around September 1998, Boehm wrote a check to Defendant Kasirer
in the amount of $18,000 pursuant to an undisclosed agreement under which Defendant Boehm
(hared a portion of the underwriter's counsel fees with Defendant Kasirer. Defendant's Boehm's
payments to Defendant Kasirer purportedly were to compensate Defendant Kasirer for time spent
13

by Defendant Kasirer and employees of Health Care Holdings in assisting in the preparation of
the Official Statements. In effect, Defendant Kasirer was receiving a portion of the fees of the
lawyer who was supposed to be conducing due diligence with respect to Defendant Kasirer. In
addition, Defendant Boehm's law firm, Atkinson, Andelson, Loya, Ruud and Romo, wire-
transferred monies to Debra Kasirer on October 29, 1998 in the sum of $24,000; on January 22,
1999 in the sum of $48,000 and on April 12, 1999 in the sum of $24,000.
Defendant Kasirer Controlled Heritage
41.
	
Defendant Kasirer did not hold any position with Heritage or its affiliates.
Nevertheless, Defendant Kasirer effectively controlled Heritage and the Heritage Affiliates at all
times relevant herein.
42.Although he had no position with Heritage or the Heritage Affiliates, for most of
the relevant period Defendant Kasirer was a signatory on the operating and payroll accounts of
the Heritage Affiliates.
43.
	
Defendant Kasirer's control over Heritage was so strong that he was able to direct
that Heritage pay his personal obligations. Specifically, on April 9, 1997, Defendant Kasirer
faxed a handwritten memorandum to Rubin. In that memorandum, Defendant Kasirer stated:
I was informed last night [a creditor of Kasirer] had rejected my proposal to
postpone any further monthly payments of $58,500 until the end of May at which
time I would pay them off in full.
Accordingly, I must make a payment to them by April 15, 1997. Please draw the
$58,500 from Sam Houston and call it a loan and I will repay it upon the closing
of St. Joseph.
As instructed by Defendant Kasirer, on or about April 1. 1, 1997, Rubin caused Heritage to
disburse $58,500 in payment of Defendant Kasirer's personal obligation
.
14

44.
	
Defendant Kasirer also exercised control over the manner in which Heritage and
its affiliates commingled and diverted the proceeds of the Heritage bond offerings
. On January
12, 1998, an employee of Defendant Kasirer sent Defendant Kasirer a memorandum advising
that funds for the Danforth and Sam Houston project funds had been depleted
. In response,
Defendant Goldstein, who was copied on the memorandum, wrote a note to Defendant Kasirer
asking where the money had come from to cover the cost overruns
. Defendant Kasirer replied in
writing to Defendant Goldstein:
I am now working on the two (2) year schedule which addresses inter-company
loans to keep everything going until we catch up.
45.
	
During the time period relevant herein, Defendant Kasirer regularly attended
meetings of the Heritage Board.
46.
	
Defendant Kasirer also exerted control over the selection and retention of
Heritage Board members
. Many of the Heritage Board members were friends and acquaintances
of Defendant Kasirer whom Defendant Kasirer had succeeded in placing on the Heritage Board
.
47.Defendant Kasirer also influenced hiring and firing decisions at Heritage
. Among
the individuals that Defendant Kasirer "recommended" to Heritage were its Secretary/Treasurer
and its Controller. Defendant Kasirer also recommended that Heritage hire Miller & Schroeder
to underwrite the bond offerings at issue herein.
48.
	
Defendant Kasirer's influence over Heritage was so strong that in or about August
1998, after being advised that Heritage could not afford it, he arranged a Hawaiian retreat for the
officials of Heritage and Health Care Holdings, for the purported purpose of achieving better
working relations between Heritage and Health Care Holdings. Defendant Kasirer was able to
15

charge the cost of the Hawaiian retreat, approximately $40,000, to several of the Heritage
Affiliates.
The Defendants' Commingling and Diversion of Bond Proceeds
49
.As alleged above, each Heritage bond Official Statement stated that the proceeds
from each offering would be disbursed to fund debt service and to pay certain specified expenses
in connection with the facility for which each offering was being conducted
.
50.
	
Nevertheless, although each Heritage Official Statement specified that the bond
proceeds would only be used on the project identified in that Official Statement, Defendant
Kasirer, through Rubin and other Heritage personnel, began commingling and diverting the bond
proceeds among Heritage and the Heritage Affiliates shortly after the very first offering had been
completed in 1996. The commingling and diversion of the proceeds from the Heritage bond
offerings continued until at least August 1999.
51.
	
Defendants Goldstein, Boehm, Iverson, and Dhooge each learned of the
commingling and diversion of bond proceeds at various times during 1997 and 1998, as alleged
below
. Nevertheless, after learning of the misuse of bond proceeds, Defendants Goldstein,
Boehm, Iverson, and Dhooge continued to participate in the drafting and distribution of Official
Statements and in the offer and sale of Heritage bonds, without disclosing the commingling and
diversion of the bond proceeds
. Indeed, after he became an officer of Heritage, Defendant
Goldstein personally directed numerous wrongful disbursements of bond proceeds among
Heritage and the Heritage Affiliates
.
16

52.
	
The first of the Heritage bond offerings was a $13 million issue conducted in
February 1996 for a hospital in Rancho Cucamonga, California, known as the "Rancho" project
.
During 1996, Rubin and other Heritage personnel caused over $770,000 of the bond proceeds
from the Rancho offering to be diverted to Heritage.
53.
	
In December 1996, $7
.3 million in municipal bonds were issued to finance a
Heritage facility in Texas City, Texas, the "Danforth" project
. Within four months, Rubin and
other Heritage personnel, diverted almost $750,000 of the Danforth bond proceeds to pay costs
of the Rancho project in California
. Then, during the course of 1997, Rubin and other Heritage
personnel, diverted $1 million in bond proceeds from the next two Heritage projects-Sam
Houston and St
. Joseph, bonds for which were issued in March and May 1997-to the Rancho
project. Before the end of 1997, Rubin and other Heritage personnel diverted approximately
$1
.1 million of the bond proceeds from the Sam Houston and St
. Joseph projects to the Danforth
project.
54.
	
In December 1997, the Defendants raised approximately $11
.7 million through an
offering of bonds for a Heritage facility in Sarasota, Florida, the "Sarasota" project
. Within six
months, Rubin and other Heritage personnel had diverted over a third of those bond proceeds,
about $4.3 million, to other Heritage projects
.
55.
	
In a June 16, 1998, memorandum Defendant Kasirer informed Defendant
Goldstein that Kasirer had "advised [a Health Care Holdings employee] that she is to speak to [a
Heritage consultant/director recommended by Kasirer] twice a day to apprise him of cash needs
henceforth
. After we get over the hump, she will speak to [the consultant] once a day to advise
17

him of the cash needs
. Based on our meeting on Monday, I think [the consultant] has an
excellent plan of how to proceed forward
; we just need to get it done."
56.
	
Approximately $8 million of bond proceeds were commingled and diverted
among the various Heritage projects from February 1996 through June 1998
.
57.
	
Defendant Goldstein became President of Heritage in August 1998. From that
time through at least August 1999, Defendant Goldstein, with the knowledge and approval of
Defendant Kasirer, directed still more commingling and diversion of proceeds from the Heritage
bond offerings. From July 1998 through August 1999, approximately $13 million of the bond
proceeds were commingled and diverted among Heritage and the various Heritage projects.
False Written Requests for Funds
58.
	
As part of the scheme to divert bond proceeds from one Heritage project to
another, Heritage personnel sent false written requests for funds to the Trustee
.
59.
	
From early 1997, bond proceeds that Heritage wrongfully transferred from one
affiliate to another were obtained from the Trustee through written requests that misrepresented
the purposes for which the funds were being requested
. In general, Heritage offered one of three
"purposes" on its written requests for proceeds destined to be trans.erred to different projects
:
"construction advance," "working capital advance," or "renovation."
60.
	
For example, on May 14, 1999, Heritage personnel submitted two written requests
to the Trustee for the release of funds for the Valley Gardens project, one for approximately
$455,000 and another for $550,000
. The first request represented that the $450,000 being sought
would be used for the purpose of "Renovation
." The second request represented that the
$550,000 was a "Working Capital advance
." These written requests were signed by Defendant
18

Goldstein on behalf of Heritage and by an employee of Defendant Kasirer, on behalf of Health
Care Holdings
. Neither request mentions transferring the proceeds to other Heritage projects
.
Three days after receiving the requisitions, the Trustee wired the requested $1
.05 million to a
bank account for the Valley Gardens project
. On the following day, $1 million was wired from
the Valley Gardens bank account to a Heritage bank account
. That same day Heritage disbursed
$1 million among five other Heritage projects
: Danforth ($175,000), Sam Houston ($150,000),
St. Joseph ($150,000), Duval ($200,000), and Rancho ($325,000).
61.
	
In other cases, Heritage personnel created invoices and submitted them to the
Trustee in support of requisitions
. For instance, on July 29, 1998, Heritage sent a requisition to
the Trustee on behalf of the Chicago project. The requisition sought the release of $900,000 of
bond proceeds, purportedly for "construction advances
." This request was signed by a Heritage
employee and by Defendant Kasirer
. The request was supported by a purported invoice for
construction advances that had been created by a Heritage employee with the knowledge and
approval of Defendant Kasirer. The next day, July 30, 1999, the Trustee disbursed the requested
$900,000 to a bank account of the Chicago project
. That same day, the entire $900,000, which
had purportedly been requested for the Chicago project, was transferred from the Chicago
project's bank account to Heritage. On the same day that Heritage received the $900,000 from
the Chicago project, Heritage transferred $625,000 to a bank account for the Sarasota project and
$300,000 to a bank account for the Rancho project.
62.
	
There are numerous other instances where Heritage falsified its written requests
for funds in order to misappropriate funds from one Heritage project and wrongfully transfer
these funds to another Heritage project
.
19

Defendants' Knowledge of the Wrongful Transfers of Bond Proceeds
63
	
Defendants Kasirer, Goldstein, Boehm, Iverson and Dhooge knew or were
reckless in not knowing that bond proceeds were being improperly commingled and diverted
.
64.
	
On March 6, 1997, Bond Counsel for the Sam Houston project wrote to
Defendant Boehm advising Defendant Boehm that he had learned of an agreement, under which
a Heritage entity had incurred a liability in connection with the St
. Joseph's acquisition and that
the Heritage entity intended to repay the liability when the Sam Houston bonds were issued
. In
Bond Counsel's letter, which was addressed to Defendant Boehm and copied to Defendants
Goldstein, Kasirer, and Dhooge, Bond Counsel stated
:
[I was advised] that in connection with the St
. Joseph's acquisition, a Columbia entity
loaned Heritage V $32,878.30 for which Heritage V gave a promissory note ("the
Heritage V
. Note").. . .Heritage V agreed to repay the Heritage V Note when the Sam
Houston bonds are issued
. . . .As we are sure you are aware, the Sam Houston bond
proceeds may not be used to repay the Heritage V Note
.
Thus, as early as March 6, 1997 Defendants Boehm, Kasirer, Goldstein and Dhooge were
advised that bond proceeds from one project could not be diverted to another project.
65.
	
In performing an audit of the 1996 financial statements of the Rancho project,
Heritage's independent auditors discovered that during 1996 Heritage had disbursed bond
proceeds for the Rancho project in ways that were inconsistent with the Official Statement for
the Rancho offering
. On May 30, 1997, the Heritage auditors sent a letter to the Board of
Directors of the Heritage Affiliate for the Rancho project
. In this letter, the auditors stated:
The funds received from the bond proceeds were not used according to the
covenants and agreements i
.e. the receivable from Heritage Housing. If this is not
corrected, the tax exempt status of bonds could be in jeopardy.
20

The Board of Directors of the Heritage Affiliate for the Rancho project consisted of the Directors
of Heritage.
66.
	
In March 1998, Heritage auditors spoke with Defendants Boehm and Dhooge and
expressed concern about the transfers of bond proceeds among various Heritage projects
.
Defendant Boehm told the auditors that such "inter-company transfers" were not prohibited
under the Heritage bond offering documents and that while such transfers were not preferred,
they were common among non-profit entities and did not break any laws
.
67.
	
On June 1, 1998, a meeting took place in Miller & Schroeder's Solana Beach
office. Defendants Kasirer, Goldstein, Boehm, Iverson, and Dhooge all attended the meeting
.
Defendants Goldstein and Kasirer informed those present of at least one instance of a
misappropriation of investor funds and a wrongful transfer of these funds
. At the meeting
Defendant Dhooge instructed Defendants Kasirer and Goldstein that only surplus revenues, not
bond proceeds, could be loaned from one project to another project
.
68.
	
Defendants Iverson, Dhooge, and Boehm did not attempt to obtain more specific
information from Defendants Goldstein and Kasirer at the meeting. Defendants Iverson,
Dhooge, and Boehm also did nothing to notify the Trustee or the investors of the
misappropriation that had taken place
. Nor did Defendants Iverson, Dhooge, and Boehm take
any action to prevent the misappropriation of bond proceeds in the future
. In fact, at or after the
meeting, Defendant Iverson instructed Defendant Dhooge not to tell the Minneapolis office of
Miller & Schroeder or the Trustee about the misappropriation of investor funds
.
69.
	
On June 9, 1998, the Heritage auditors sent a letter to the Board of Directors and
Management of St. Joseph Gardens. In their letter, the auditors stated
:
2
1

During the year, there were a substantial volume of advances to and from
affiliates, resulting in unreconciled accounts and cash flow constrictions
. The
bond documents required the proceeds of the bond to be used solely on the
Organization's project.
70.
	
On the same date, June 9, 1998, the Heritage auditors sent a letter to the Board of
Directors and Management of Sam Houston Gardens
. In that letter, the auditors stated:
During the year, there were a substantial volume of advances to and from
affiliates, resulting in unreconciled accounts and cash flow constrictions
. The
bond documents required the proceeds of the bond to be used solely on the
Organization's project.
71.
	
The Directors of Heritage constituted the Boards of Directors of the Heritage
Affiliates for the St
. Joseph and Sam Houston projects.
72.
	
In the Summer of 1998, a Health Care Holdings employee learned of the
diversion of bond proceeds
. The employee spoke to Defendant Kasirer and advised Kasirer that
he was surprised by the high dollar amounts involved in the transfers
. Defendant Kasirer told the
employee that with the proceeds from the next bond financing all would be corrected.
73.
	
On
July 17, 1998 Defendant Goldstein sent a letter to a contractor working on one
of the Heritage projects. In his letter, Defendant Goldstein stated:
This is to confirm that I am general counsel for the Heritage Companies; that I am
familiar with the fundings presently scheduled to close this month for Heritage
;
and that I am familiar with the sums due you by Heritage for services rendered
.
Please be advised that from the fundings youwillreceive the following:
1.
	
$500,000 on or before July 31, 1998]
2.
	
$500,000 on or before August 7, 1998
The balance of the funds now due you should be paid on or before September 30,
1998
22

Misrepresentations and Misleading Omissions in the Official Statements
Regarding Uses of the Bond Proceeds
74.
	
Each Heritage bond Official Statement contained a section regarding "Estimated
Sources and Uses of Funds." In each Official Statement, the listed uses-purchase price of
existing facility, renovation, architecture and engineering, costs of issuance-all related to costs
of the facility for which the bonds were issued.
75.
	
Each Heritage bond Official Statement also contained a summary statement such
as the following, from the Valley Gardens offering Official Statement
: "The proceeds derived
from the sale of the [Valley Garden] Bonds will be used to repay certain debt obligations
incurred in connection with the acquisition of the Existing Facility, perform the Renovation
Project, fund a Debt Service Reserve Fund, initially fund the Valley Gardens Indigency Fund,
fund start-up costs and capitalized interest and pay certain costs of issuance with respect to the
[Valley Garden] Bonds
." In each offering, the stated uses for the bond proceeds relate only to
the particular facility involved with that offering.
76.
	
None of the Heritage bond Official Statements discloses that a possible use of the
bond proceeds might be a transfer of those proceeds to other,.failing, Heritage projects
.
77.
	
None of the Heritage bond Official Statements disclosed the extensive
commingling of bond proceeds among the various Heritage projects, the financial
interdependence of the Heritage projects, the contemplated use of bond proceeds to pay existing
facilities expenses, or the construction delays, cost overruns and financial difficulties
:experienced at the other Heritage projects
. The Heritage bond Official Statements did not
23

disclose these material facts, even though Defendants Kasirer and Goldstein knew, and
Defendants Boehm, Iverson and Dhooge knew, or recklessly disregarded, the undisclosed facts
.
78.
	
Four of the Heritage facilities, (Duval Gardens, Eastwood Gardens, House of
Seminole, and Valley Gardens) were part of a master indenture financing structure
. This master
indenture financing structure was instituted at the request of Miller & Schroeder and allowed
surplus revenues of the projects-not bond proceeds, but, rather operating revenues remaining
after debts and other obligations had been met-to be utilized to obligors under the master
indenture
. The master indenture financing structure did not permit the transfer of bond proceeds
from one project to another.
Other Misrepresentations and Omissions in the Heritage Offering Documents
79.
	
Each of the Official Statements represented that Heritage and the Heritage
affiliate involved in that offering were governed by an Independent Board of Directors which
was responsible for overseeing and managing the affairs of Heritage and the Heritage affiliate.
These representations were false and misleading
. In fact Heritage and the Heritage affiliates
involved in the offerings were effectively controlled by Defendant Kasirer.
80.
	
Each of the Heritage bond Official Statements touted the experience and abilities
of Defendant Kasirer
. The Official Statements highlighted Kasirer's experience in developing
retirement communities, assisted living facilities and healthcare facilities for non-for-profit
owners. However, the Official Statements failed to disclose Defendant Kasirer's control of
Heritage, his several prior business failures, and several judgments that had been entered against
him
. Defendants Goldstein and Boehm knew of Defendant Kasirer's prior business failures
; and
24

Defendants Iverson and Dhooge knew or were reckless in not knowing of Kasirer's prior
business failures.
81
.
	
The Heritage Official Statements fail to disclose the conflict of interest created by
the fact that the underwriter's counsel had entered into an agreement with Kasirer, wherein the
underwriter's counsel was giving a portion of his fees to Kasirer.
COUNT I
Violations of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder
82.
	
Plaintiff realleges and incorporates herein by reference paragraphs 1 through 81,
above.
83.
	
By reason of the activities described above in paragraphs 1 through 82,
Defendants Kasirer, Goldstein, Boehm, Iverson and Dhooge, in connection with the purchase
and sale of securities, and by the use of the means and instrumentalities of interstate commerce
and by the use of the mails, directly and indirectly employed devices, schemes and artifices to
defraud; made untrue statements of material fact and omitted to state material facts necessary in
order to make the statements made, in light of the circumstances under which they were made,
not misleading; and engaged in acts, practices and courses of business which operated and would
operate as a fraud and deceit.
84.
	
Defendants Kasirer, Goldstein, Boehm, Iverson and Dhooge acted with scienter
when they engaged in the conduct described in paragraphs 1 through 82, above.
85.
	
By reason of the activities described in paragraphs 1 through 82, above,
Defendants Kasirer, Goldstein, Boehm, Iverson and Dhooge violated Section 10(b) of the
25

Exchange Act [15 U
.S.C. §§78j(b)] and Rule lOb-5 [17 C.F.R. §240.10b-5] promulgated
thereunder.
COUNT II
Violations of Section 17(a)(1) of the Securities Act
86.
	
Plaintiff realleges and incorporates herein by reference paragraphs 1 through 81,
above.
87.
	
By reason of the activities described above in paragraphs 1 through 86,
Defendants Kasirer, Goldstein, Boehm, Iverson and Dhooge, in the offer and sale of securities,
by the use of the means and instrumentalities of transportation and communication in interstate
commerce and by the use of the mails, directly and indirectly, employed devices, schemes and
artifices to defraud
.
88.
	
Defendants Kasirer, Goldstein, Boehrn, Iverson and Dhooge acted with scienter
when they engaged in the conduct described in paragraphs 1 through 86, above
.
89.
	
By reason of the activities described in paragraphs 1 through 86, above,
Defendants Kasirer, Goldstein, Boehm, Iverson and Dhooge violated Section 17(a)(1) of the
Securities Act [15 U
.S.C. §77q(a)(1)].
COUNT III
Violations of Sections 17(a)(2) and17(a)(3) of the Securities Act
90.
	
Plaintiff realleges and incorporates herein by reference paragraphs 1 through 81,
above.
26

91.
	
By reason of the activities described above in paragraphs 1 through 90,
Defendants Kasirer, Goldstein, Boehm, Iverson and Dhooge, in the offer and sale of securities,
by the use of the means and instruments of transportation and communication in interstate
commerce and by the use of the mails, directly and indirectly, obtained money and property by
means of untrue statements of material facts and omissions to state material facts necessary in
order to make the statements made, in light of the circumstances under which they were made,
not misleading; and engaged in transactions, practices and courses of business which operated or
would operate as a fraud and deceit upon investors and prospective investors.
92.
	
By reason of the activities described in paragraphs 1 through 90 above,
Defendants Kasirer, Goldstein, Boehm, Iverson and Dhooge violated Sections 17(a)(2) and
17(a)(3) of the Securities Act [15 U.S.C. §77q(a)(2) and(3)].
PRAYER FOR RELIEF
WHEREFORE,Plaintiff, the United States Securities and Exchange Commission,
respectfully requests that this Court
:
A.
	
Find that Defendants Kasirer, Goldstein, Boehm, Iverson and Dhooge committed
the violations alleged in this Complaint
;
B.
	
Permanently enjoin Kasirer, Goldstein, Boehm, Iverson and Dhooge those
persons in active concert or participation with it who receive actual notice of the injunction by
personal service or otherwise, and each of them, from violating Section 17(a) of the Securities
Act [15 U
.S.C.§77(q)(a)],Section 10(b) of the Exchange Act [15 U
.S.C. §78j(b)] and Rule lOb-
5 [17 C.F.R. §240.1Ob-5] promulgated thereunder;
27

C.
Order Defendants Kasirer, Goldstein, Boehm, Iverson and Dhooge to disgorge all
ill-gotten gains received by them as a result of the wrongful conduct set forth in this Complaint,
including prejudgment interest;
D.
	
Order Defendants Kasirer, Goldstein, Boehm, Iverson and Dhooge to pay
appropriate civil penalties for the wrongful conduct set forth in this Complaint, pursuant to
Section 20(d) of the Securities Act [15 U.S.C. §77t(d)] and Section 21(d)(3) of the Exchange Act
[15 U.S.C. §§78u(d)(3)]; and
F.
	
Grant such additional relief as this Court deems appropriate.
Respectfully submitted,
Dated: June 29, 2003
ohn E. Birkenheiner,
	
ar No. 6270993
Telephone: (312) 886-3947
Email: birkenheierj@sec
.gov
Susan M. Weis, IL Bar No. 6211578
Telephone: (312) 886-8259
E
mail: [email protected]
Attorneys for Plaintiff
United States Securities and Exchange Commission
175 West Jackson Blvd., 9thFloor
Chicago, Illinois 60604
Facsimile
: (312) 353-7398
28

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

SECURITIES AND EXCHANGE
COMMISSION,

ROBERT A. KASIRER
JEROLD V. GOLDSTEIN
JOEL T. BOEHM
JAMES E. IVERSON, AND
VICTOR P. DHOOGE

Defendants .

COMPLAINT

Plaintiff, Securities and Exchange Commission ("Plaintiff' or "SEC") alleges :

SUMMARY

1 .

	

From February 1996 through August 1999, the Defendants, acting in concert,

fraudulently offered and sold over $131 million of municipal revenue bonds to members of the

public. The Defendants offered and sold the bonds in question through a series of eleven

offerings underwritten by the now-defunct, Minnesota firm of Miller & Schroeder Financial, Inc .

("Miller & Schroeder"). The Defendants sold the bonds to more than 1,800 investors residing in

36 States .

1

CIVIL ACTION
FILE NO.

Plaintiff,

V.

11 olmnlc", rMN?mMly



2 .

	

The purported purpose of each bond offering was to finance the development of a

specified healthcare facility by Heritage Housing Development, Inc ., a company effectively

controlled by Defendant Kasirer ("Heritage") . The Heritage facilities consisted of various senior

assisted living facilities and a hospital . All together, there were ten Heritage facilities located in

the States of Texas, Florida, Illinois and California .

3 .

	

The Defendants represented in offering documents that the proceeds from each

bond offering would be used to finance one specific healthcare facility . In fact, however, from

the very beginning the costs of developing the Heritage facilities, including payments to

Defendant Kasirer and some of his family members, outstripped the proceeds from the facilities'

respective bond offerings .

4 . The Defendants covered the resulting cash shortfalls by operating a type of Ponzi

scheme, commingling bond proceeds and diverting bond proceeds from more recent offerings to

pay the expenses of earlier projects . Eventually all ten of the Heritage facilities failed .

5 .

	

The diversion of bond proceeds from one project to another went on for three

years. The Defendants did not mention their diversion of bond proceeds in any of the offering

documents, and instead falsely represented that the bond proceeds from each offering would be

used only for that respective Heritage facility . Miller & Schroeder continued to sell the Heritage

bonds to investors until early August 1999 . The following month, September 1999, the

Defendants' commingling and diversion of bond proceeds was publicly disclosed. Beginning in

February 2000, the Heritage facilities ran out of money and defaulted on their obligations to the

bondholders . Presently, all the Heritage facilities are in default on their bonds .

2



6.

	

Defendants Kasirer and Goldstein, the primary architects of the scheme,

controlled Heritage. Defendants Kasirer and Goldstein personally directed the commingling and

misapplication of bond proceeds . Defendants Iverson and Dhooge, representatives of Miller &

Schroeder, managed the underwriting of the various bond offerings, despite their knowledge that

bond proceeds were being wrongfully commingled and diverted . Defendant Boehm, an attorney

who acted as counsel for Miller & Schroeder in the bond offerings, issued favorable legal

opinions despite his knowledge that bond proceeds were being wrongfully commingled and

diverted . Defendants Kasirer, Goldstein, Boehm, Iverson and Dhooge, acting knowingly or with

a reckless disregard for the truth, all took part in writing, reviewing, or disseminating bond

prospectuses ("Official Statements") which misled investors with regard to, among other things,

Defendant Kasirer's role in the affairs of Heritage, the financial condition of the Heritage

facilities, and the true uses to be made of the bond proceeds . All the Defendants personally

profited from the scheme .

7 .

	

Defendants Kasirer, Goldstein, Boehm, Iverson and Dhooge, directly and

indirectly, have engaged in and, unless enjoined, will continue to engage in, acts, practices and

courses of business which constitute and will constitute violations of Section 17(a) of the

Securities Act of 1933 ("Securities Act") [15 U .S .C .§77q(a)], Section 10(b) of the Securities

Exchange Act of 1934 ("Exchange Act") [15 U .S.C . §78j(b)] and Rule lOb-5 [17 C .F.R.

6240.1 Ob-51 promulgated thereunder .

8 . Plaintiff brings this action to enjoin such acts, practices and courses of business,

and for other equitable relief, pursuant to Section 20(b) and 20(c) of the Securities Act [15 U .S .

C §§ 77t(b), 77t(c) and Sections 21(d), 21(e) of the Exchange Act [15 U .S .C . §§78u(d),78u(e)] .

3



JURISDICTION

9. The SEC brings this action pursuant to the authority conferred on it by Sections

20(b) and 20(d) of the Securities Act [15 U.S .C. §§77t(b) and §77t(d)], and Sections 21(d) and

21(e) of the Exchange Act [15 U .S.C. §§78u(d) and 78u(e)] .

10 .

	

This Court has jurisdiction over this matter pursuant to Section 22(a) of the

Securities Act [15 U .S .C. §77v(a)] and Section 27 of the Exchange Act [15 U.S .C . §78aa] .

11 .

	

The acts, practices and courses of business constituting the violations herein have

occurred within the jurisdiction of the United States District Court for the Northern District of

Illinois and elsewhere .

12 . Defendants, directly and indirectly have made use of the mails and of the means

and instrumentalities of interstate commerce in connection with the transactions, acts, practices

and courses of business alleged herein in the Northern District of Illinois .

13 .

	

There is a reasonable likelihood that the Defendants will, unless enjoined,

continue to engage in the transactions, acts, practices and courses of business set forth in this

Complaint, and transactions, acts, practices and courses of business similar in purport and object .

THE DEFENDANTS

14 .

	

At all times relevant to this Complaint, Defendant Kasirer, who is 55 years old,

lived in or near Beverly Hills, California . Defendant Kasirer, who is an attorney, describes

himself as a consultant who assists people in financings and various projects . Defendant Kasirer

effectively controlled Heritage . He exerted control over Heritage management, and he was able

to direct the diversion of bond proceeds . Defendant Kasirer managed the Heritage facilities at

issue herein, first through a subsidiary of a company named Iatros Health Network . Inc . and then

4



from June 1, 1997 until August 1, 1999, through a company owned by Kasirer-Health Care

Holdings, L.P. ("Health Care Holdings") . In the mid-1980's, Kasirer formed CongreCare

Retirement Housing Corporation, through which he developed and managed at least three

retirement facilities . Two of the facilities were financed by municipal bonds, and one was HUD

financed. The HUD-financed facility ultimately went through Chapter 7 liquidation . Both of the

other facilities, one in Colorado and one in Illinois, defaulted on their bond payments .

15 .

	

At all times relevant to this Complaint, Defendant Goldstein, who is 63 years old,

lived in or near Encino, California. Defendant Goldstein's involvement with Heritage began

when he incorporated the Company in 1993 . Defendant Goldstein, who is an attorney, served as

outside counsel to Heritage from its inception until July 1998 when he was hired by Heritage as

General Counsel, Executive Vice President and Chief Operating Officer. The following month

he was made President of Heritage . At all times relevant to this Complaint, Defendant Goldstein

attended Heritage Board meetings . He also reviewed drafts of the Heritage Official Statements

and other offering documents prior to the issuance of the bonds at issue in this Complaint .

16 .

	

At all times relevant to this Complaint, Defendant Boehm, who is 57 years old,

lived in or near Carlsbad, California . Boehm, who is an attorney, served as counsel to the

underwriter, Miller & Schroeder, for nine of the bond offerings at issue in this suit and as bond

counsel for one of the bond offerings at issue in this suit .

17 .

	

At all times relevant to this Complaint, Defendant Iverson, who is 68 years old,

lived in or near Agoura, California . Until August 1997, Defendant Iverson owned 49% of the

stock of Miller & Schroeder and served as the firm's Executive Vice President and Chairman of

the Board of Directors . In or about August 1997, Miller & Schroeder was sold to a group of

5



former and outside shareholders. After August 1997, Defendant Iverson was a Vice President

and 1/10 of 1% shareholder of Miller & Schroeder . At all times relevant herein, Defendant

Iverson was primarily responsible for supervising the public finance underwriters in Miller &

Schroeder's Solana Beach, California office .

18 .

	

At all times relevant to this Complaint, Defendant Dhooge, who is 59 years old,

lived in or near Solana Beach, California . At all times relevant herein, Dhooge worked in the

public finance department of Miller & Schroeder's Solana Beach office and served as a vice

president of the firm . Defendant Dhooge was the individual in the underwriting department at

Miller & Schroeder responsible for selling the Heritage bonds to the public .

OTHER RELEVANT INDIVIDUALS INVOLVED

19 .

	

Emery Rubin, now deceased, founded Heritage in 1993 . Offering documents for

the first several bond offerings at issue herein identify Rubin as a senior consultant to Heritage ;

he functioned effectively as Heritage's President . On August 18, 1997, the Heritage Board

elected Rubin to the office of President of Heritage . Rubin and Kasirer had a long-term

relationship . Rubin babysat Kasirer when Kasirer was a child . Rubin and Kasirer also had prior

business dealings before the Heritage projects as Rubin was also involved in the CongreCare

projects. The Heritage Board terminated Rubin by resolution on February 18, 1998 .

ENTITIES INVOLVED

20.

	

SRC Holding Corporation f/k/a/ Miller & Schroeder Financial, Inc . ("Miller &

Schroeder") was incorporated in Minnesota in 1963, and was a registered broker-dealer,

specializing in underwriting and dealing in municipal securities . Miller & Schroeder was

headquartered in Minneapolis, Minnesota, but during 1996 through 2000, the firm also had

6



underwriting and sales staff in its branch office in Solana Beach, California . From 1996 through

August 1999, Miller & Schroeder was responsible for underwriting the municipal bond

financings of health care facilities to be developed by Heritage . In December 2000, Miller &

Schroeder discontinued its retail financial services, transferring that business to another firm .

Nine months later, in September 2001, Miller & Schroeder sold most of its remaining business to

a group of investors, giving up its name to the new company and renaming what remained of the

old company Securities Resolution Corporation . That company applied to withdraw from

registration as a broker-dealer and filed for Chapter 7 bankruptcy liquidation in January 2002 .

This bankruptcy is currently pending in the Minnesota . In re: SRC Holding Corporation, f/k/a

Miller & Schroeder, Inc ., BKY Nos . 02-4-286-02-40286 (Bankr. Dist. MN) .

21 .

	

Heritage Housing Development, Inc . ("Heritage") was formed in 1993 as a

California not-for-profit corporation, based in Los Angeles . At all times relevant to this

Complaint, Heritage consisted primarily of a President, Secretary, Controller and a Board of

Directors. Heritage had few employees . Instead, Heritage relied on outside people, such as

Goldstein. Heritage's stated purpose was to acquire, develop, and operate healthcare facilities

serving the elderly, and particularly those suffering from Alzheimer's disease . Heritage bought

and renovated existing healthcare facilities in various parts of the country . In most cases,

Heritage created a separate non-profit affiliate company to own and operate each facility

("Heritage Affiliate") . Heritage shared the same board of directors with and was the sole

member of each non-profit affiliate .

22 .

	

latros Health Network, Inc . ("latros"), began business in 1992 as Gracecare

Health Systems, Inc ., but changed its executive team and its name in 1994 . latros and its

7



subsidiaries owned, leased, and managed long term health care facilities in a number of eastern,

mid-south, and western states . In 1995, latros acquired Kasirer's respiratory rehabilitation

company, King Care Respiratory Services, Inc ., whereupon Kasirer became a member of latros'

board of directors . latros' subsidiary IHN/Health Services Group, Inc . ("IHN"), managed the

early Heritage facilities until Heritage terminated the contract on June 1, 1997 . Thereafter,

Health Care Holdings managed the Heritage facilities .

23 .

	

Health Care Holdings, L.P ., was a manager of specialty healthcare facilities

formed by Kasirer as a Nevada limited partnership in 1994, and converted to a limited liability

corporation in 1998 (together, "Health Care Holdings") . Kasirer was the owner and chief

executive officer of Health Care Holdings, which managed the Heritage facilities at issue herein

from June 1, 1997 through August 1, 1999 .

THE DEFENDANTS' FRAUD

The Heritage Bond Offerings

24 .

	

From February 1996 through August 1999, various affiliates of Heritage raised

over $131 million through eleven public offerings of municipal revenue bonds (the "Heritage

bonds") . The Heritage bonds were issued for the stated purpose of providing financing to

Heritage and its affiliates for the acquisition, renovation, and operation of healthcare facilities .

The eleven Heritage bond offerings financed ten different facilities, located in Texas, Florida,

Illinois and California . The facilities were to provide care to geriatric patients and persons

suffering from Alzheimer's disease. Miller & Schroeder sales representatives sold the Heritage

bonds. These eleven offerings are summarized below :

8



25 .

	

The Heritage bonds were revenue bonds . That is, the Heritage bonds were not

backed in any way by the credit or taxing power of the issuing municipal authorities, or of the

relevant states or any of their political subdivisions or agencies . Rather, because the Heritage

issues were revenue bonds, the primary source of funds available to fund interest and principal

payments to the bond holders was to be the revenue generated from the operation of the

respective Heritage healthcare facilities .

26 .

	

The Heritage bonds were generally structured such that each municipality or

municipal corporation that issued bonds (the issuer) agreed to loan the bond proceeds to the

Heritage Affiliate responsible for the facility being funded . At the same time, the issuer assigned

the loan to the indenture trustee (the "Trustee") . The bond proceeds were turned over to the

Trustee, which thereafter released the proceeds to the Heritage Affiliate as needed, in response to

requisitions, or draw requests, submitted by the Heritage Affiliate[u51 . . As required by the loan

9

Facility Location Series A Series B Series C Total

Danforth Gardens Texas City 6,440,000 855,00 7,295,000
Sam Houston Gardens Houston 9,265,000 1,105,000 10,370,000
St. Joseph Gardens Fort Worth 11,745,000 1,675,000 13,420,000
House of Sarasota Sarasota 10,740,000 1,565,000 12,305,000
Duval Gardens Austin 9,190,000 1,900,000 11,090,000
Heritage House of Chicago Chicago 15,750,000 1,525,000 17,275,000

Heritage Hospital Rancho 13,900,000 8,430,000 22,330,000

St. Joseph Gardens
Cucamonga
Fort Worth 2,010,000 2,130,000 2,715,000 6,855,000

Eastwood Gardens Houston 8,775,000 2,545,000 11,320,000
House of Seminole Seminole 5,820,000 1,410,000 7,230,000
Valley Gardens Brownsville 9,785,000 1,950,000 11,735,000

Total : 115,450,000 26,110,000 2,715,000 131,225,000



agreement, the Heritage Affiliate was to make monthly payments to the Trustee sufficient to pay,

when due, the principal and interest on the bonds[u6] . At each bond closing, Miller & Schroeder

entered into a "firm commitment" underwriting agreement with the issuer, by which Miller &

Schroeder agreed to purchase the entire bond issue at one time, for later re-sale to investors[u7] .

27 .

	

Miller & Schroeder's sales representatives in its Minneapolis, Minnesota and

Solana Beach, California offices sold the Heritage bonds to members of the public .

28 . The Heritage bonds were purchased by approximately 1,800 individual investors

located in thirty-six different states . In addition, certain of the Heritage Bonds were purchased

by a Milwaukee-based investment adviser and fund manager .

29 .

	

Six of the facilities underlying the Heritage bonds were located in Texas .

(Danforth Gardens, Sam Houston, St . Joseph Gardens, Duval Gardens, Eastwood Gardens and

Brownsville) . Two of the facilities underlying the Heritage bonds were located in Florida

(Seminole and Sarasota). One facility was located in Illinois (Chicago), and one facility was

located in California (Rancho) .

30 .

	

Each of the Heritage projects experienced cost overruns and construction delays .

The Heritage Bond Offering Official Statements

31 . An Official Statement was prepared and distributed to investors throughout the

country for each of the Heritage bond offerings . An Official Statement is the municipal bond

version of a prospectus . Among other things, an Official Statement for a new issue discloses to

investors information about the bonds and the issuer of the bonds . The Heritage bond Official

Statements were sent to brokers and to persons who purchased the Heritage bonds .

1 0



32 .

	

The Heritage bond Official Statements contained, among other things, sections

describing the Bonds, the Annual Debt Service Requirements, the Plan of Financing, the

Estimated Sources and Uses of Funds, the Forecasted Debt Service Coverage, the Sources of

Payment and Security for the Bonds, the Financial Covenants, The Facility, The Issuer, The

Company, the Management of the Facility and Bondholder's Risks .

33 .

	

Defendant Kasirer played a leading role in the drafting of each of the Heritage

bond Official Statements . Defendant Kasirer was one of the primary drafters of the Official

Statement for the first Heritage Bond offering, the offering for the Danforth, Texas facility . For

each of the subsequent Official Statements, Defendant Kasirer instructed a Health Care Holdings

employee regarding changes to be made from the previous Official Statement . Defendant

Kasirer then reviewed and approved each Official Statement before it was distributed to

investors .

34 .

	

Defendant Boehm acted as the Underwriter's Counsel for nine of the Heritage

Bond offerings-those for the Danforth Gardens, Sam Houston, St. Joseph Gardens, House of

Sarasota, Duval Gardens, Eastwood Gardens, House of Seminole and Valley Gardens projects .

Defendant Boehm also served as Bond Counsel for the second Heritage Hospital ("Rancho")

offering. As Underwriter's Counsel, Defendant Boehm was responsible for preparing the

Heritage bond Official Statements. Defendant Boehm also was responsible for performing due

diligence regarding the Heritage bonds. As Bond Counsel, Boehm was responsible to ensure that

the second Heritage Hospital offering was validly issued under state bond law . Defendant

Boehm provided information for and reviewed each of these Heritage bond Official Statements

before it was distributed to investors .
II



35 .

	

Drafts of the Heritage bond Official Statements were distributed to Defendants

Iverson and Dhooge for their review . Defendant Boehm asked Defendants Dhooge and Iverson

to review and make changes to the Official Statements . As representatives of the underwriter,

Defendants Dhooge and Iverson had the ability to request changes in the language of the

Heritage Official Statements .

36 .

	

Drafts of the Heritage bond Official Statements were distributed to Defendant

Goldstein for his review . For the first eight Heritage Official Statements (Danforth Gardens,

Sam Houston Gardens, St. Joseph Gardens, House of Sarasota, Duval Gardens, Heritage House

of Chicago, Heritage Hospital, St . Joseph Gardens II), Defendant Goldstein served as Heritage s

outside counsel . Defendant Goldstein signed the last three Heritage Official Statements

(Eastwood Gardens, Heritage House of Seminole, and Valley Gardens) on behalf of Heritage .

As to the last three Official Statements, Defendant Goldstein represented on behalf of Heritage

that "the Company has reviewed the information contained herein and has authorized all such

information for use within this Official Statement." Defendant Goldstein understood that his

signature meant that the representations contained in the Official Statements relating to Heritage

were correct .

Defendant Kasirer Profited from the Heritage Bond Offerings

37

	

Defendant Kasirer's financial interest in the Heritage projects began with his

ownership interest in the properties that the Heritage Affiliates purchased for each of those

projects. In the mid-1990s, Kasirer resolved a prior dispute with Columbia/HCA Health

Network, Inc . ("Columbia"), through an agreement under which Columbia agreed to transfer

12



several closed healthcare facilities to a company Defendant Kasirer owned . Defendant Kasirer

then turned to Heritage and negotiated a series of complex agreements with Defendant Goldstein,

Rubin and the Heritage Board on behalf of Heritage . Taken together, these agreements created a

mechanism through which the Heritage Affiliates purchased healthcare facilities from Kasirer's

company for eight of the projects financed by the bonds at issue in this Complaint . The Heritage

Affiliates used bond proceeds from the offerings at issue in this Complaint to make those

purchases. As a result of the agreements with Heritage and its affiliates, Defendant Kasirer

profited from each of those purchases .

38 .

	

Defendant Kasirer also profited from the Heritage bond offerings in that Heritage

selected Kasirer's company, Health Care Holdings, to manage the facilities financed with the

proceeds of the Heritage bond offerings .

39 .

	

Defendant Kasirer's family also benefited from the Heritage bond offerings .

Defendant Kasirer's wife, Debra Kasirer, was paid, under her maiden name, as an interior design

consultant by one of the Heritage Affiliates, although she performed no work for that Affiliate .

Moreover, Golden State Health Centers, Inc ., of which Kasirer's father was the Vice President

and Chief Operating Officer, was hired by a Heritage Affiliate to be the supervisory manager of

the Sarasota project. Defendant Kasirer's father was unaware of this arrangement .

40 .

	

Defendant Kasirer also received money from the underwriter's counsel,

Defendant Boehm. On or around September 1998, Boehm wrote a check to Defendant Kasirer

in the amount of $18,000 pursuant to an undisclosed agreement under which Defendant Boehm

(hared a portion of the underwriter's counsel fees with Defendant Kasirer . Defendant's Boehm's

payments to Defendant Kasirer purportedly were to compensate Defendant Kasirer for time spent

1 3



by Defendant Kasirer and employees of Health Care Holdings in assisting in the preparation of

the Official Statements . In effect, Defendant Kasirer was receiving a portion of the fees of the

lawyer who was supposed to be conducing due diligence with respect to Defendant Kasirer . In

addition, Defendant Boehm's law firm, Atkinson, Andelson, Loya, Ruud and Romo, wire-

transferred monies to Debra Kasirer on October 29, 1998 in the sum of $24,000 ; on January 22,

1999 in the sum of $48,000 and on April 12, 1999 in the sum of $24,000 .

Defendant Kasirer Controlled Heritage

41 .

	

Defendant Kasirer did not hold any position with Heritage or its affiliates .

Nevertheless, Defendant Kasirer effectively controlled Heritage and the Heritage Affiliates at all

times relevant herein .

42 . Although he had no position with Heritage or the Heritage Affiliates, for most of

the relevant period Defendant Kasirer was a signatory on the operating and payroll accounts of

the Heritage Affiliates .

43 .

	

Defendant Kasirer's control over Heritage was so strong that he was able to direct

that Heritage pay his personal obligations . Specifically, on April 9, 1997, Defendant Kasirer

faxed a handwritten memorandum to Rubin . In that memorandum, Defendant Kasirer stated :

I was informed last night [a creditor of Kasirer] had rejected my proposal to
postpone any further monthly payments of $58,500 until the end of May at which
time I would pay them off in full .

Accordingly, I must make a payment to them by April 15, 1997 . Please draw the
$58,500 from Sam Houston and call it a loan and I will repay it upon the closing
of St. Joseph .

As instructed by Defendant Kasirer, on or about April 1. 1, 1997, Rubin caused Heritage to

disburse $58,500 in payment of Defendant Kasirer's personal obligation .

14



44 .

	

Defendant Kasirer also exercised control over the manner in which Heritage and

its affiliates commingled and diverted the proceeds of the Heritage bond offerings . On January

12, 1998, an employee of Defendant Kasirer sent Defendant Kasirer a memorandum advising

that funds for the Danforth and Sam Houston project funds had been depleted . In response,

Defendant Goldstein, who was copied on the memorandum, wrote a note to Defendant Kasirer

asking where the money had come from to cover the cost overruns . Defendant Kasirer replied in

writing to Defendant Goldstein :

I am now working on the two (2) year schedule which addresses inter-company
loans to keep everything going until we catch up .

45 .

	

During the time period relevant herein, Defendant Kasirer regularly attended

meetings of the Heritage Board .

46 .

	

Defendant Kasirer also exerted control over the selection and retention of

Heritage Board members . Many of the Heritage Board members were friends and acquaintances

of Defendant Kasirer whom Defendant Kasirer had succeeded in placing on the Heritage Board .

47 . Defendant Kasirer also influenced hiring and firing decisions at Heritage . Among

the individuals that Defendant Kasirer "recommended" to Heritage were its Secretary/Treasurer

and its Controller. Defendant Kasirer also recommended that Heritage hire Miller & Schroeder

to underwrite the bond offerings at issue herein .

48 .

	

Defendant Kasirer's influence over Heritage was so strong that in or about August

1998, after being advised that Heritage could not afford it, he arranged a Hawaiian retreat for the

officials of Heritage and Health Care Holdings, for the purported purpose of achieving better

working relations between Heritage and Health Care Holdings . Defendant Kasirer was able to

1 5



charge the cost of the Hawaiian retreat, approximately $40,000, to several of the Heritage

Affiliates .

The Defendants' Commingling and Diversion of Bond Proceeds

49 . As alleged above, each Heritage bond Official Statement stated that the proceeds

from each offering would be disbursed to fund debt service and to pay certain specified expenses

in connection with the facility for which each offering was being conducted .

50 .

	

Nevertheless, although each Heritage Official Statement specified that the bond

proceeds would only be used on the project identified in that Official Statement, Defendant

Kasirer, through Rubin and other Heritage personnel, began commingling and diverting the bond

proceeds among Heritage and the Heritage Affiliates shortly after the very first offering had been

completed in 1996. The commingling and diversion of the proceeds from the Heritage bond

offerings continued until at least August 1999 .

51 .

	

Defendants Goldstein, Boehm, Iverson, and Dhooge each learned of the

commingling and diversion of bond proceeds at various times during 1997 and 1998, as alleged

below. Nevertheless, after learning of the misuse of bond proceeds, Defendants Goldstein,

Boehm, Iverson, and Dhooge continued to participate in the drafting and distribution of Official

Statements and in the offer and sale of Heritage bonds, without disclosing the commingling and

diversion of the bond proceeds . Indeed, after he became an officer of Heritage, Defendant

Goldstein personally directed numerous wrongful disbursements of bond proceeds among

Heritage and the Heritage Affiliates .

1 6



52 .

	

The first of the Heritage bond offerings was a $13 million issue conducted in

February 1996 for a hospital in Rancho Cucamonga, California, known as the "Rancho" project .

During 1996, Rubin and other Heritage personnel caused over $770,000 of the bond proceeds

from the Rancho offering to be diverted to Heritage .

53 .

	

In December 1996, $7 .3 million in municipal bonds were issued to finance a

Heritage facility in Texas City, Texas, the "Danforth" project . Within four months, Rubin and

other Heritage personnel, diverted almost $750,000 of the Danforth bond proceeds to pay costs

of the Rancho project in California. Then, during the course of 1997, Rubin and other Heritage

personnel, diverted $1 million in bond proceeds from the next two Heritage projects-Sam

Houston and St . Joseph, bonds for which were issued in March and May 1997-to the Rancho

project. Before the end of 1997, Rubin and other Heritage personnel diverted approximately

$1 .1 million of the bond proceeds from the Sam Houston and St . Joseph projects to the Danforth

project .

54 .

	

In December 1997, the Defendants raised approximately $11 .7 million through an

offering of bonds for a Heritage facility in Sarasota, Florida, the "Sarasota" project . Within six

months, Rubin and other Heritage personnel had diverted over a third of those bond proceeds,

about $4.3 million, to other Heritage projects .

55 .

	

In a June 16, 1998, memorandum Defendant Kasirer informed Defendant

Goldstein that Kasirer had "advised [a Health Care Holdings employee] that she is to speak to [a

Heritage consultant/director recommended by Kasirer] twice a day to apprise him of cash needs

henceforth. After we get over the hump, she will speak to [the consultant] once a day to advise

1 7



him of the cash needs. Based on our meeting on Monday, I think [the consultant] has an

excellent plan of how to proceed forward; we just need to get it done ."

56 .

	

Approximately $8 million of bond proceeds were commingled and diverted

among the various Heritage projects from February 1996 through June 1998 .

57 .

	

Defendant Goldstein became President of Heritage in August 1998 . From that

time through at least August 1999, Defendant Goldstein, with the knowledge and approval of

Defendant Kasirer, directed still more commingling and diversion of proceeds from the Heritage

bond offerings. From July 1998 through August 1999, approximately $13 million of the bond

proceeds were commingled and diverted among Heritage and the various Heritage projects .

False Written Requests for Funds

58 .

	

As part of the scheme to divert bond proceeds from one Heritage project to

another, Heritage personnel sent false written requests for funds to the Trustee .

59 .

	

From early 1997, bond proceeds that Heritage wrongfully transferred from one

affiliate to another were obtained from the Trustee through written requests that misrepresented

the purposes for which the funds were being requested . In general, Heritage offered one of three

"purposes" on its written requests for proceeds destined to be trans .erred to different projects :

"construction advance," "working capital advance," or "renovation ."

60 .

	

For example, on May 14, 1999, Heritage personnel submitted two written requests

to the Trustee for the release of funds for the Valley Gardens project, one for approximately

$455,000 and another for $550,000 . The first request represented that the $450,000 being sought

would be used for the purpose of "Renovation." The second request represented that the

$550,000 was a "Working Capital advance ." These written requests were signed by Defendant
1 8



Goldstein on behalf of Heritage and by an employee of Defendant Kasirer, on behalf of Health

Care Holdings . Neither request mentions transferring the proceeds to other Heritage projects .

Three days after receiving the requisitions, the Trustee wired the requested $1 .05 million to a

bank account for the Valley Gardens project . On the following day, $1 million was wired from

the Valley Gardens bank account to a Heritage bank account . That same day Heritage disbursed

$1 million among five other Heritage projects : Danforth ($175,000), Sam Houston ($150,000),

St. Joseph ($150,000), Duval ($200,000), and Rancho ($325,000) .

61 .

	

In other cases, Heritage personnel created invoices and submitted them to the

Trustee in support of requisitions . For instance, on July 29, 1998, Heritage sent a requisition to

the Trustee on behalf of the Chicago project . The requisition sought the release of $900,000 of

bond proceeds, purportedly for "construction advances ." This request was signed by a Heritage

employee and by Defendant Kasirer. The request was supported by a purported invoice for

construction advances that had been created by a Heritage employee with the knowledge and

approval of Defendant Kasirer . The next day, July 30, 1999, the Trustee disbursed the requested

$900,000 to a bank account of the Chicago project . That same day, the entire $900,000, which

had purportedly been requested for the Chicago project, was transferred from the Chicago

project's bank account to Heritage . On the same day that Heritage received the $900,000 from

the Chicago project, Heritage transferred $625,000 to a bank account for the Sarasota project and

$300,000 to a bank account for the Rancho project .

62 .

	

There are numerous other instances where Heritage falsified its written requests

for funds in order to misappropriate funds from one Heritage project and wrongfully transfer

these funds to another Heritage project .

1 9



Defendants' Knowledge of the Wrongful Transfers of Bond Proceeds

63

	

Defendants Kasirer, Goldstein, Boehm, Iverson and Dhooge knew or were

reckless in not knowing that bond proceeds were being improperly commingled and diverted .

64 .

	

On March 6, 1997, Bond Counsel for the Sam Houston project wrote to

Defendant Boehm advising Defendant Boehm that he had learned of an agreement, under which

a Heritage entity had incurred a liability in connection with the St . Joseph's acquisition and that

the Heritage entity intended to repay the liability when the Sam Houston bonds were issued. In

Bond Counsel's letter, which was addressed to Defendant Boehm and copied to Defendants

Goldstein, Kasirer, and Dhooge, Bond Counsel stated :

[I was advised] that in connection with the St . Joseph's acquisition, a Columbia entity
loaned Heritage V $32,878 .30 for which Heritage V gave a promissory note ("the
Heritage V. Note") . . . . Heritage V agreed to repay the Heritage V Note when the Sam
Houston bonds are issued . . . . As we are sure you are aware, the Sam Houston bond
proceeds may not be used to repay the Heritage V Note .

Thus, as early as March 6, 1997 Defendants Boehm, Kasirer, Goldstein and Dhooge were

advised that bond proceeds from one project could not be diverted to another project .

65 .

	

In performing an audit of the 1996 financial statements of the Rancho project,

Heritage's independent auditors discovered that during 1996 Heritage had disbursed bond

proceeds for the Rancho project in ways that were inconsistent with the Official Statement for

the Rancho offering . On May 30, 1997, the Heritage auditors sent a letter to the Board of

Directors of the Heritage Affiliate for the Rancho project . In this letter, the auditors stated :

The funds received from the bond proceeds were not used according to the
covenants and agreements i .e. the receivable from Heritage Housing . If this is not
corrected, the tax exempt status of bonds could be in jeopardy .

20The Board of Directors of the Heritage Affiliate for the Rancho project consisted of the Directors

of Heritage .

66 .

	

In March 1998, Heritage auditors spoke with Defendants Boehm and Dhooge and

expressed concern about the transfers of bond proceeds among various Heritage projects .

Defendant Boehm told the auditors that such "inter-company transfers" were not prohibited

under the Heritage bond offering documents and that while such transfers were not preferred,

they were common among non-profit entities and did not break any laws .

67 .

	

On June 1, 1998, a meeting took place in Miller & Schroeder's Solana Beach

office . Defendants Kasirer, Goldstein, Boehm, Iverson, and Dhooge all attended the meeting .

Defendants Goldstein and Kasirer informed those present of at least one instance of a

misappropriation of investor funds and a wrongful transfer of these funds . At the meeting

Defendant Dhooge instructed Defendants Kasirer and Goldstein that only surplus revenues, not

bond proceeds, could be loaned from one project to another project .

68 .

	

Defendants Iverson, Dhooge, and Boehm did not attempt to obtain more specific

information from Defendants Goldstein and Kasirer at the meeting . Defendants Iverson,

Dhooge, and Boehm also did nothing to notify the Trustee or the investors of the

misappropriation that had taken place. Nor did Defendants Iverson, Dhooge, and Boehm take

any action to prevent the misappropriation of bond proceeds in the future . In fact, at or after the

meeting, Defendant Iverson instructed Defendant Dhooge not to tell the Minneapolis office of

Miller & Schroeder or the Trustee about the misappropriation of investor funds .

69 .

	

On June 9, 1998, the Heritage auditors sent a letter to the Board of Directors and

Management of St . Joseph Gardens . In their letter, the auditors stated :

2 1



During the year, there were a substantial volume of advances to and from
affiliates, resulting in unreconciled accounts and cash flow constrictions . The
bond documents required the proceeds of the bond to be used solely on the
Organization's project .

70 .

	

On the same date, June 9, 1998, the Heritage auditors sent a letter to the Board of

Directors and Management of Sam Houston Gardens. In that letter, the auditors stated :

During the year, there were a substantial volume of advances to and from
affiliates, resulting in unreconciled accounts and cash flow constrictions . The
bond documents required the proceeds of the bond to be used solely on the
Organization's project .

71 .

	

The Directors of Heritage constituted the Boards of Directors of the Heritage

Affiliates for the St . Joseph and Sam Houston projects .

72 .

	

In the Summer of 1998, a Health Care Holdings employee learned of the

diversion of bond proceeds . The employee spoke to Defendant Kasirer and advised Kasirer that

he was surprised by the high dollar amounts involved in the transfers . Defendant Kasirer told the

employee that with the proceeds from the next bond financing all would be corrected .

73 .

	

On July 17, 1998 Defendant Goldstein sent a letter to a contractor working on one

of the Heritage projects. In his letter, Defendant Goldstein stated :

This is to confirm that I am general counsel for the Heritage Companies ; that I am
familiar with the fundings presently scheduled to close this month for Heritage ;
and that I am familiar with the sums due you by Heritage for services rendered .

Please be advised that from the fundings you will receive the following :
1 .

	

$500,000 on or before July 31, 1998]
2 .

	

$500,000 on or before August 7, 1998

The balance of the funds now due you should be paid on or before September 30,
1998

22



Misrepresentations and Misleading Omissions in the Official Statements

Regarding Uses of the Bond Proceeds

74.

	

Each Heritage bond Official Statement contained a section regarding "Estimated

Sources and Uses of Funds." In each Official Statement, the listed uses-purchase price of

existing facility, renovation, architecture and engineering, costs of issuance-all related to costs

of the facility for which the bonds were issued .

75 .

	

Each Heritage bond Official Statement also contained a summary statement such

as the following, from the Valley Gardens offering Official Statement : "The proceeds derived

from the sale of the [Valley Garden] Bonds will be used to repay certain debt obligations

incurred in connection with the acquisition of the Existing Facility, perform the Renovation

Project, fund a Debt Service Reserve Fund, initially fund the Valley Gardens Indigency Fund,

fund start-up costs and capitalized interest and pay certain costs of issuance with respect to the

[Valley Garden] Bonds." In each offering, the stated uses for the bond proceeds relate only to

the particular facility involved with that offering .

76 .

	

None of the Heritage bond Official Statements discloses that a possible use of the

bond proceeds might be a transfer of those proceeds to other, .failing, Heritage projects .

77 .

	

None of the Heritage bond Official Statements disclosed the extensive

commingling of bond proceeds among the various Heritage projects, the financial

interdependence of the Heritage projects, the contemplated use of bond proceeds to pay existing

facilities expenses, or the construction delays, cost overruns and financial difficulties

:experienced at the other Heritage projects . The Heritage bond Official Statements did not

23



disclose these material facts, even though Defendants Kasirer and Goldstein knew, and

Defendants Boehm, Iverson and Dhooge knew, or recklessly disregarded, the undisclosed facts .

78 .

	

Four of the Heritage facilities, (Duval Gardens, Eastwood Gardens, House of

Seminole, and Valley Gardens) were part of a master indenture financing structure . This master

indenture financing structure was instituted at the request of Miller & Schroeder and allowed

surplus revenues of the projects-not bond proceeds, but, rather operating revenues remaining

after debts and other obligations had been met-to be utilized to obligors under the master

indenture . The master indenture financing structure did not permit the transfer of bond proceeds

from one project to another .

Other Misrepresentations and Omissions in the Heritage Offering Documents

79 .

	

Each of the Official Statements represented that Heritage and the Heritage

affiliate involved in that offering were governed by an Independent Board of Directors which

was responsible for overseeing and managing the affairs of Heritage and the Heritage affiliate .

These representations were false and misleading . In fact Heritage and the Heritage affiliates

involved in the offerings were effectively controlled by Defendant Kasirer .

80 .

	

Each of the Heritage bond Official Statements touted the experience and abilities

of Defendant Kasirer. The Official Statements highlighted Kasirer's experience in developing

retirement communities, assisted living facilities and healthcare facilities for non-for-profit

owners. However, the Official Statements failed to disclose Defendant Kasirer's control of

Heritage, his several prior business failures, and several judgments that had been entered against

him. Defendants Goldstein and Boehm knew of Defendant Kasirer's prior business failures ; and

24



Defendants Iverson and Dhooge knew or were reckless in not knowing of Kasirer's prior

business failures .

81 .

	

The Heritage Official Statements fail to disclose the conflict of interest created by

the fact that the underwriter's counsel had entered into an agreement with Kasirer, wherein the

underwriter's counsel was giving a portion of his fees to Kasirer .

COUNT I

Violations of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder

82 .

	

Plaintiff realleges and incorporates herein by reference paragraphs 1 through 81,

above.

83 .

	

By reason of the activities described above in paragraphs 1 through 82,

Defendants Kasirer, Goldstein, Boehm, Iverson and Dhooge, in connection with the purchase

and sale of securities, and by the use of the means and instrumentalities of interstate commerce

and by the use of the mails, directly and indirectly employed devices, schemes and artifices to

defraud; made untrue statements of material fact and omitted to state material facts necessary in

order to make the statements made, in light of the circumstances under which they were made,

not misleading; and engaged in acts, practices and courses of business which operated and would

operate as a fraud and deceit .

84 .

	

Defendants Kasirer, Goldstein, Boehm, Iverson and Dhooge acted with scienter

when they engaged in the conduct described in paragraphs 1 through 82, above .

85 .

	

By reason of the activities described in paragraphs 1 through 82, above,

Defendants Kasirer, Goldstein, Boehm, Iverson and Dhooge violated Section 10(b) of the

25



Exchange Act [15 U.S.C. §§78j(b)] and Rule lOb-5 [17 C .F.R. §240.10b-5] promulgated

thereunder.

COUNT II

Violations of Section 17(a)(1) of the Securities Act

86 .

	

Plaintiff realleges and incorporates herein by reference paragraphs 1 through 81,

above.

87 .

	

By reason of the activities described above in paragraphs 1 through 86,

Defendants Kasirer, Goldstein, Boehm, Iverson and Dhooge, in the offer and sale of securities,

by the use of the means and instrumentalities of transportation and communication in interstate

commerce and by the use of the mails, directly and indirectly, employed devices, schemes and

artifices to defraud .

88 .

	

Defendants Kasirer, Goldstein, Boehrn, Iverson and Dhooge acted with scienter

when they engaged in the conduct described in paragraphs 1 through 86, above .

89 .

	

By reason of the activities described in paragraphs 1 through 86, above,

Defendants Kasirer, Goldstein, Boehm, Iverson and Dhooge violated Section 17(a)(1) of the

Securities Act [15 U .S .C. §77q(a)(1)] .

COUNT III

Violations of Sections 17(a)(2) and17(a)(3) of the Securities Act

90 .

	

Plaintiff realleges and incorporates herein by reference paragraphs 1 through 81,

above .

26



91 .

	

By reason of the activities described above in paragraphs 1 through 90,

Defendants Kasirer, Goldstein, Boehm, Iverson and Dhooge, in the offer and sale of securities,

by the use of the means and instruments of transportation and communication in interstate

commerce and by the use of the mails, directly and indirectly, obtained money and property by

means of untrue statements of material facts and omissions to state material facts necessary in

order to make the statements made, in light of the circumstances under which they were made,

not misleading; and engaged in transactions, practices and courses of business which operated or

would operate as a fraud and deceit upon investors and prospective investors .

92 .

	

By reason of the activities described in paragraphs 1 through 90 above,

Defendants Kasirer, Goldstein, Boehm, Iverson and Dhooge violated Sections 17(a)(2) and

17(a)(3) of the Securities Act [15 U.S.C. §77q(a)(2) and (3)] .

PRAYER FOR RELIEF

WHEREFORE, Plaintiff, the United States Securities and Exchange Commission,

respectfully requests that this Court :

A.

	

Find that Defendants Kasirer, Goldstein, Boehm, Iverson and Dhooge committed

the violations alleged in this Complaint ;

B.

	

Permanently enjoin Kasirer, Goldstein, Boehm, Iverson and Dhooge those

persons in active concert or participation with it who receive actual notice of the injunction by

personal service or otherwise, and each of them, from violating Section 17(a) of the Securities

Act [15 U .S .C . §77(q)(a)], Section 10(b) of the Exchange Act [15 U.S .C . §78j(b)] and Rule lOb-

5 [17 C.F.R. §240.1Ob-5] promulgated thereunder ;

27



C. Order Defendants Kasirer, Goldstein, Boehm, Iverson and Dhooge to disgorge all

ill-gotten gains received by them as a result of the wrongful conduct set forth in this Complaint,

including prejudgment interest ;

D.

	

Order Defendants Kasirer, Goldstein, Boehm, Iverson and Dhooge to pay

appropriate civil penalties for the wrongful conduct set forth in this Complaint, pursuant to

Section 20(d) of the Securities Act [15 U .S .C . §77t(d)] and Section 21(d)(3) of the Exchange Act

[15 U.S .C . §§78u(d)(3)] ; and

F .

	

Grant such additional relief as this Court deems appropriate .

Respectfully submitted,

Dated: June 29, 2003

ohn E. Birkenheiner,

	

ar No . 6270993
Telephone: (312) 886-3947
E mail: birkenheierj@sec .gov
Susan M. Weis, IL Bar No . 6211578
Telephone : (312) 886-8259
E mail: [email protected]
Attorneys for Plaintiff
United States Securities and Exchange Commission
175 West Jackson Blvd., 9 th Floor
Chicago, Illinois 60604
Facsimile : (312) 353-7398

28