ABC Capital files for bankruptcy, under fire from foreign investors over distressed Baltimore properties

Published on: November 15, 2022 10:24 AM EST|Updated on: November 15, 2022 3:43 PM EST

Jaime Sepulveda Rodriguez, from Chile, purchased a property that was supposed to be fixed up and rented but never was.

ABC Capital, a Philadelphia-based company that is facing mounting lawsuits from foreign and other investors who were sold properties in distressed Baltimore neighborhoods, filed for bankruptcy Tuesday morning.

The filing, seeking Chapter 7 protection in U.S. Bankruptcy Court in Pennsylvania, came just minutes before a civil trial brought by an investor was to begin in Philadelphia. Those proceedings and others will now be postponed as the bankruptcy proceedings play out.

The Baltimore Banner reported this month that ABC Capital, run by co-founder Jay Walsh, is facing more than 30 lawsuits related to homes in Baltimore and Philadelphia. Those homes were flipped to foreign and other far-flung investors, who were sold a “hands-off” process in which ABC would renovate, rent out and manage the properties for them.

Instead, frustrated investors say promised repairs weren’t made and properties sit empty, contributing to rather than fixing Baltimore’s problems with blight and disinvestment. Some have filed lawsuits accusing the company of running a fraudulent Ponzi scheme, while others, unsure how to seek relief in a country where they do not reside, complain on message boards or in group chats.

Adam Barsky, an attorney who represents several investors, said he was “not surprised” at the bankruptcy filing.

“It was the only option that they had at this point considering they’re dead-to-rights in so many civil suits,” said Barsky, who represents the investor whose case was set for trial Tuesday.

Barsky said the bankruptcy filing will cause an automatic stay across all civil matters and all debt collections.

Collecting from ABC had been an issue already. Barsky said his firm has represented 20 investors and that ABC has entered into settlement agreements that it did not pay.

“I don’t understand how they’ve been given free reign for so long across the country, in such a pervasive and open matter,” he said. “It’s predatory, and I feel bad for my clients.”

ABC’s attorney Andrew Swain could not immediately be reached for comment. Walsh did not immediately respond to an email requesting comment.

Walsh has since formed a new company called IPP USA, which stands for “Income Producing Properties.”

On the bankruptcy form, ABC checked boxes indicating it has between one and 49 creditors, estimated assets of between $0 and $50,000, and estimated liabilities of between $0 and $50,000. Two other affiliated companies — New Philly Construction LLC and State-Side Philly LLC — also filed bankruptcy papers Tuesday morning.

Walsh does not appear to have filed for personal bankruptcy, but his Philadelphia home went on the market Tuesday for $1.45 million.

In a Chapter 7 bankruptcy, a company seeks to clear away unsecured debts. A trustee may sell certain property and use the proceeds to repay creditors, and at the end of the process the court discharges remaining debts.

ABC got its start acquiring property throughout Philadelphia, and moved into the Baltimore market in late 2016. The Banner identified almost 700 Baltimore properties that the company had been involved in transferring to investors’ limited liability companies. Walsh has said the number in Baltimore is more than 1,200 properties.

The Banner visited hundreds of the properties throughout Baltimore and found a wide range of conditions. In some heavily blighted blocks, a home owned by an ABC investor might be in better shape than most others. But many homes remain boarded up years after they were acquired, despite a promise to guarantee rental income to the investor for as many as three years. Others appear from the outside to be secured but sitting empty. Still others are occupied by squatters.

In an interview with The Banner last month, Walsh denied claims of fraud but acknowledged that some homes were not renovated as promised due to a “myriad of reasons,” and said he no longer purchases homes for investors that need to be fixed up. He also said he had stopped acting as a property manager for clients.

Walsh said that he could not comment on litigation but provided pictures of completed renovations before homes fell into disrepair and said he helped spark investment in blighted areas. He said attorneys were “copying and pasting” their accusations.

One lawsuit filed in federal court in Pennsylvania, which has since been settled, accused ABC Capital of running a racketeering enterprise by using “funds of new investors, including funds specifically earmarked for renovations of those new investors’ properties, to make the guaranteed rental payments to prior investors and/or to buy-back the prior investors’ properties.”

Another lawsuit brought by Argentinian investors who bought three dilapidated Baltimore properties said ABC Capital targets foreigners “due to their lack of familiarity with the residential/rental real estate market in the United States, the language difference, and the fact that [the companies] lacked personnel who could monitor the ABC Capital Defendants’ performance.”

The company lost a $1.25 million judgement in Philadelphia in August and has settled at least six other cases there in recent months.

Mary Jayson says she was an Israeli investor with ABC, and is part of a 200-person email thread of investors trying to figure out how to get relief. Like others who spoke with The Banner, she doesn’t understand why American authorities haven’t stepped in.

“People in Israel took out their money from pensions, borrowed money from banks, and lost hard-earned savings,” Jayson said. “For some of us like myself who lost 200,000 USD of hard-earned money and bank loans I am still paying, it meant starting over in life.”

The case set for trial Tuesday was filed in 2018, and involved four properties bought by a limited liability company called Cheetah NR in Philadelphia in 2013. The investor, who lived in Israel at the time, said they paid $206,140 for the homes, and another $97,890 for renovations. The lawsuit claims ABC “failed to make any renovations to the properties ... breached the terms of the property management agreement by failing to lease all properties pursuant to the agreement’s guarantee, and allowed the properties to remain vacant for significant periods of time due to the properties’ untenable conditions.”

They also said ABC collected rent without disbursing the proceeds to the investor, and the properties have since fallen into disrepair, remained vacant and been “largely ignored” by ABC.

ABC is a plaintiff in another pending lawsuit, filed Baltimore Circuit Court, against Miami-based Property Invest USA, which markets Baltimore homes to investors in Turkey and Latin America. In that case ABC has accused Property Invest of stealing its business model by wooing one of its employees.

Walsh founded ABC with two other men, Yaron Zer and Amir Vana. Philadelphia court filings indicate Zer is living in Israel and recently filed for bankruptcy there.

This article will be updated.