(Bloomberg) -- A strip mall mogul was found guilty in New York of orchestrating a fake $77 million tender offer for WeWork Inc. to profit from stock options he bought in the days before the company filed for bankruptcy in November 2023.
Jonathan Larmore, 51, was convicted Tuesday of fraud in connection with a tender offer and securities fraud in federal court in Manhattan following a weeklong trial. The jury deliberated for about two hours before handing down the verdict. Larmore faces as long as 20 years in prison for each count at sentencing on March 4, although white-collar criminals rarely receive the statutory maximum.
Prosecutors alleged Larmore bought thousands of WeWork options just days before an entity he controlled, Cole Capital Funds LLC, made an offer to buy WeWork stock at $9 a share, which sent the price soaring 150% on Nov. 3. He stood to make millions of dollars on the options, but he mistimed a press release announcing the offer, and his options expired about an hour before the rally, the government said.
WeWork had been the fastest-growing co-working company in the world, with millions of square feet of office space and a peak valuation of $47 billion in 2019. But by last year, slumping demand left it with more liabilities than assets. Shares that fetched more than $500 in 2021 were trading at less than $1 in early November, when the company was expected to file for bankruptcy.
That’s when Larmore used Cole Capital, which had “no genuine business operations,” to make a bogus tender offer and artificially inflate the value of WeWork shares and options, the government said.
Larmore’s attorneys had argued that the offer for WeWork was legitimate and that he never intended to manipulate the market.
“Of course we’re disappointed with the jury’s verdict,” Bruce Udolf, one of Larmore’s attorneys, said after the verdict was read. “We respect it and we plan to appeal.”
Larmore was a so-called real estate syndicator — a private investor who makes deals in commercial properties using other people’s money. It’s an often overlooked corner of the US market. In 2005, he founded ArciTerra Cos., which acquired strip malls and other retail properties in need of revamping, fixed them up and then refinanced them to raise cash.
SEC Lawsuit
The prolonged decline in interest rates after the 2008 financial crisis made such investments attractive. By 2023, ArciTerra had more than 80 properties valued at close to $600 million. But the rise in interest rates that began in 2022 led to a drop in valuations for office buildings, apartments and retail properties. Larmore and ArciTerra faced a flurry of lawsuits — from investors, construction companies, a commercial cleaner and the city of Milwaukee.
In a lawsuit filed in November, the US Securities and Exchange Commission accused Larmore of misappropriating more than $35 million of client funds from Arciterra starting in at least 2017. The agency said he raised about $45 million from more than 1,000 investors and issued secured notes that promised more than 8% in annual interest.
Larmore closed ArciTerra’s Phoenix office in April 2023, fired most of the employees and left management to two remote consultants. In December, a court-approved receiver took over, with the job of collecting rent, making loan payments and, potentially, selling off properties and returning capital to investors. As of June, the receiver has taken control of 39 Arciterra properties and is actively managing them.
The case is US v Larmore, 24-cr-140, US District Court, Southern District of New York.
(Updates with sentencing date and comment from defense attorney.)
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