What the Joplin Globe hasn't told you about Wallace-Bajjali, Part Two

With the millions of dollars that Joplin taxpayers will end up investing in the firm of master developer Wallace-Bajjali, you might think the area's newspaper of record, the Joplin Globe, would have conducted an investigation into the background of the Texas company. Except for about one paragraph ( a quote from City Manager Mark Rohr saying any problems weren't really problems), the Globe has continued to play cheerleader instead of looking after the public interest.

In part one, I wrote about two bankruptcies and an SEC investigation involving Wallace-Bajjali. The problems noted by the SEC are the same ones that brought a lawsuit against Wallace-Bajjali earlier this year accusing partners David Wallace and Costa Bajjali of conducting a $3 million Ponzi scheme.

I wrote about this August 15 in Inside Joplin and the Turner Report.

Investors in two funds connected to Joplin’s master developer Wallace-Bajjali claim in a lawsuit filed this week in Harris County, Texas, District Court that firm owners David Wallace and Costa Bajjali were involved in a $3 million Ponzi scheme.

Wallace told the Amarillo Globe-News , We consider the lawsuit very frivolous. We consider it to be without merit and we are going to defend it vigorously.” 

The scheme  resulted in an SEC investigation, which ended with Wallace and Bajalli agreeing to pay $60,000 fines. Each man made his last payment three days before the city of Joplin hired the firm to conduct the $800 million development of Joplin’s tornado-stricken area.

In its complaint, which was filed May 20, 2011, the SEC alleged that between November 2006 and December 2008, Wallace and Bajjali “offered and sold securities in two real estate funds they controlled in Houston, Texas, called the Wallace Bajjali Investment Fund II, L. P. and the Laffer Frishberg Wallace Economic Opportunity Fund, L. P.

In written disclosures relating to the securities offerings, Wallace and Bajjali told investors they would limit the Funds’ investment in any one business or project to certain percentages of the money the Funds raised- no more than 33 percent for the Wallace-Bajjali Fund and no more than 20 percent for the Opportunity Fund.

“Contrary to their written representation, Wallace and Bajjali far exceeded these limits by heavily investing the Funds’ money in Business Radio Networks, L.P, doing business as BizRadio, a struggling media company. As a result, they subjected the Funds’ investors to substantially greater investment risk than the Funds’ written materials disclosed.”

The statement of facts filed by SEC says that by May 2007 the Wallace-Bajjali Fund had received more than $16 million and had invested more than $6.5 million in BizRadio. The ratio was even higher with the Opportunity Fund, where $7 million was raised and $4 million went to BizRadio, far more than the 20 percent limit. Court documents indicate Wallace and Bajjali entered into an agreement with a company called Investment Adviser in Houston to handle the securities funds. It would appear that the two are casting the blame on that company for violating SEC regulations.