Bank execs indicted in Ramsey Town Center scam

The near-implosion of the Ramsey Town Center, considered one of the biggest residential real estate debacles in recent Twin Cities history, may have been an inside job.

According to a 29-count federal indictment handed up in Minneapolis on Wednesday, millions of dollars in loans that lenders thought were going to fund the project -- once considered the future crown jewel of the north metro suburbs -- went instead to a handful of bank executives who diverted the money for their own use and then mislead other banks and federal regulators to cover it up.

To Bob Ramsey, mayor of Ramsey, the federal charges add fuel to the widely held view among residents in his city that it was shady financial dealings -- and not the faltering economy or the tanking housing market -- that nearly destroyed the 322-acre project.

"There's been speculation all throughout this city that there might've been some funny things going on," Ramsey said Wednesday after the indictment was made public.

The conspiracy charges illustrate just how big a role bankers might have played in the project's near demise. City officials had hoped Ramsey Town Center would transform the mostly rural area of Anoka County -- about 30 miles north of Minneapolis -- into a bustling suburban mecca, with 2,800 housing units, shops, 25 acres of parkland and a transit station connected to the future Northstar Commuter Rail.

Now, about a decade after the project was hatched, nearly half the land is vacant and in foreclosure. The original developer has died of cancer. And while the city still has hopes for the project, the original concept of a transit-oriented suburban community has withered. The City of Ramsey has yet to recoup its $12 million investment in infrastructure, such as roads and utilities that it installed at the site, the mayor said.

According to the indictment, three former executives at Community National Bank, then in North Branch and now in Lino Lakes, solicited 20 banks to loan $35 million to the Ramsey Town Center project. Then the executives allegedly diverted some of that money, plus some income from the project, to repay their own loans without telling the banks involved in the project. In total, the banks suffered losses "in excess of $20 million," and the Ramsey Town Center defaulted on the $35 million loan.

The defendants named in the indictment are William Garfield Sandison, 65, former president of Community National Bank; his son, Ross William Sandison, 42, a former vice president at the bank; and Curtis Alan Martinson, 53, a former executive vice president. They all face charges of conspiracy, bank fraud, mail fraud, misapplication of bank funds, and money laundering. The Sandisons each also face an additional charge of conspiracy to defraud the U.S. government. None of the three men still work for Community National.

Paul Engh, attorney for Ross Sandison, said his client intends to plead not guilty. "We look forward to his exoneration," Engh said.

Bill Sandison's attorney, Mark Larsen, said that his client is innocent and that he doesn't want to try the case in the press, unlike the U.S. government.

"We will try this case in the courtroom," Larsen said.

Moving money around

The indictment lists a series of transactions in which the defendants allegedly transferred money from the Town Center project to their personal accounts or to a separate firm called Pentagon Credit LLC, which they and some other, unidentified persons allegedly created to provide the project with $6 million in operating funds.

In one case, the Sandisons and other unidentified persons made a $990,000 loan to the Town Center and its late developer, Bruce Nedegaard, without telling the banks involved in the project. The defendants then collected a 30 percent "loan origination fee" for themselves, the indictment says. The indictment says the defendants also repeatedly misrepresented to the banks "that Ramsey Town Center was performing well and the outlook for the project was favorable," even while the Town Center was late in paying contractors.

"The defendants' false lulling statements were made to preclude the participating banks from taking actions to protect their investment," the indictment says.

According to the U.S. attorney's office, federal bank regulators were also misled. In April 2007, the Sandisons stated in a letter that certain expenses questioned by the federal Office of the Comptroller of the Currency were "ordinary and necessary business expenses that relate to bank business." According to the indictment, however, some of the questioned items were "personal in nature," including $33,000 in meals and entertainment and $9,000 in landscape work done at the Sandisons' residences.

The Comptroller of the Currency cracked down on Community National at least twice in recent years. Last June, it ordered the dismissal of the Sandisons.

Engh said that all parties knew what they were getting into when they signed on to the Ramsey Town Center deal.

"It was a real estate transaction vetted by dozens of lawyers who all recommended the respective banks sign on," he said. "The cause of the failure of the project was the marketplace collapse."

City officials insist the project is far from dead. About half of the original 322 acres for Ramsey Town Center have been sold off over the years to various parties.

Minnetonka-based Minnwest Bank foreclosed on the remaining 150 acres last month, and the City of Ramsey has said it intends to buy that chunk for about $6.75 million. The deal is scheduled to close June 26, the mayor said.

Minnwest sued Community National Bank, as well as the Sandisons and other bank executives, in November 2007 for breach of contract and fraud, among other things. That litigation is ongoing.

"Whether or not there were shenanigans is all water under the bridge, in my opinion," Ramsey said. "That's what courts are for, to sort all this out. ... Our focus has been on how we can get this land out of foreclosure so we can get some development happening."

Ramsey averred that the initial plans for the Town Center project were "a little over-zealous."

The Town Center project still holds promise, said Mary Bujold, president of Minneapolis-based real estate research firm Maxfield Research Inc.

"Once the Northstar starts, there will be a reason for development to occur there," Bujold said. "What happened is, everybody just got the cart before the horse. They all thought things would ramp up out there a lot faster than they really did."

Chris Serres • 612-673-4308 Jennifer Bjorhus • 612-673-4683