JMJ Development Prevails in $5 Million Lawsuit Alleging Fraud by Morgans Hotel Group

DALLAS, Jan. 27, 2016 (hospitalitybusinessnews.com) — JMJ Development, LLC, one of the largest builders of luxury real-estate properties in the United States and internationally, is pleased to announce that it has prevailed in its $5 million lawsuit regarding fraud committed by Morgans Hotel Group and its executives and Turkish landowner Zeki Coruk.

JMJ Development was notified that the Turkish court’s expert witness concurred that Coruk and Morgans Hotel conspired to perform fraud and bad acts to the detriment of JMJ Development.

Tim Barton, chief executive of JMJ Development, said, “We are gratified that the expert witness concurred with our allegations and found in our financial favor.  However, we believe the SEC should investigate the bribery allegations and mislabeling of payments that arose against Morgans Hotel and its top executive during the litigation.  And we would ask the courts, as the appeals play out, to be attentive to the bad actors’ penchant for mendacity and misuse of borrowed funds, especially in the case of Zeki Coruk.”

He added, “We can’t help questioning why an investor like Ron Burkle, now owner of Morgans Hotel Group, would not move more expeditiously to clean up his holdings and rid himself and his holdings of relationships like those revealed in this case so far.”

JMJ Development secured an investment and development agreement with Mr. Coruk in Istanbul in early 2011 to develop a 5-star luxury hotel in Old Town Istanbul.  JMJ proceeded to engage a world-class international architectural firm and to select Morgans Hotel Group as hospitality operator.  Morgans notified JMJ that it intended to move aggressively to finalize and secure this strategic location in Istanbul. Mr. Coruk further informed Morgans in writing that all negotiations were to go through JMJ.

Shortly thereafter, Morgans underwent a restructuring which led to investor Ron Burkle’s investment group, Yucaipa Companies, taking control of Morgans.  Still, Morgans’ CEO Michael Gross and new Director of Development Yoav Gery assured JMJ Development of their continued relationship under the terms of the original agreement.

However, without JMJ’s knowledge or participation, Morgans and Coruk created a new Turkish company, Morbel Hospitality, to own and develop the hotel, with Gross and Morgans’ chief financial officer on its board.  Morgans also released $10 million to the new company under terms remarkably similar to the terms it had previously negotiated and reconfirmed with JMJ.

The fraudulent and bad acts and unsavory actions by the defendants include the following:

  • Morgans Hotel Group paid Coruk $10 million for the investment but quickly took a $1.5 million kickback, concealing it by labeling it a TSA with the shell company formed with Coruk, so as to prop up Morgans’ sliding stock price with purported services revenue. Since JMJ Development filed the lawsuit, the Morgans executives involved in the fraud have been fired and received large “severance” settlement that could be construed as hush money, and are nowhere to be found. Coruk told Barton that Morgans’ Director of Development Yoav Gery should buy Coruk dinner or something, since Gery’s severance pay was due to their bad acts.
  • Coruk is under investigation for paying bribes in Turkey to secure permits. He has attempted to pay off Morgans Hotel Group, while Morgans Hotel Group has taken a $3 million discount to avoid further dealings with Coruk. Coruk used Morgans’ money Ponzi-style to buy a hotel site near the Istanbul (?) airport as well as new Holiday Inn and another hotel, all built with Morgans’ cash. Having fleeced Morgans for more than $3 million and a zero interest loan of $7 million, Coruk is now attempting to get Hyatt Hotels to give him money to build the hotel.
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