Iowa taxpayers are now among the creditors waiting to get their money back from executives of the defunct Regency business group.

Regency officials James Myers, Robert Myers, Richard Moffitt and John Gamble owe the state for a $448,000 loan obtained five years ago from the Iowa Department of Natural Resources, according to documents and interviews obtained by the Des Moines Sunday Register. The state loaned the partners the money to help pay for capital improvements to a now-closed construction debris recycling plant on Des Moines' east side.

"They never made any payments," DNR legal counsel Jon Tack said.

And they likely never will.

"The bottom line is that all the partners in that operation are bankrupt," said Loretta Sieman, spokeswoman for the Myerses. "There is no money."

But the problems facing taxpayers and the plant's owners are potentially even more costly and involve allegations of fraud:

• The DNR says that either the state or the owners will have to pay cleanup costs that could total as much as $1 million at the recycling plant site and at a former truck stop in Bondurant where the company dumped tons of recycled debris material. Two weeks ago, company executives received a $1,000 fine for failing to begin cleanup of the Bondurant site and will continue to be fined monthly until the job is completed.

• James Myers, Robert Myers, Moffitt and Gamble and their partners face four lawsuits related to the Environmental Reclamation and Recycling plant.

• A group of New York investors has raised allegations of fraud in a lawsuit against the Regency executives over what they claim was an illegal transfer of the recycling plant property from a joint partnership. In addition, a DNR lawyer wrote in a letter in March to Regency executives that the circumstances of the loan might require state officials "to investigate whether fraudulent practices have been engaged in to defraud the State of Iowa of the $448,000 loan amount."

The recycling plant folded its operation just before the financial collapse of Regency Homes became public in March. Since then, the warehouse doors of the plant, located at 1422 E. Scott Ave., have been open, with mountains of debris spilling out of three bay areas.

All of this comes as Regency officials face a total of 19 lawsuits claiming nearly $70 million in defaulted loans as a result of the collapse of the company's residential and commercial building operations. Just a couple of years ago, the company billed itself as the state's largest homebuilder.


DNR battles owners over debris and loan

Regency executives opened the plant, called Environmental Reclamation, in 2005, believing that they had found a way to dispose of construction debris - either as cover in landfills or as fuel to be burned in various plants.

James Myers described the company's efforts as "the right thing to do."

But discord between state environmental officials and the plant's owners began in 2006, when DNR officials discovered the company had begun to stockpile recycled construction material improperly on the pavement of what once was a truck stop north of Interstate Highway 80 at 72nd Street in Bondurant, state records show.

"It is primarily wood waste, and in the condition that it is in, we don't think the runoff should be allowed," said Tack, the DNR's lawyer. "The runoff from the material releases water as it deteriorates that has very low level of oxygen in it, and that is why it needs to be cleaned up."

Neither disposing of the debris nor burning it proved profitable, and as the Regency empire began to crumble so did the operation of the recycling plant.

DNR records show that state officials and company executives continued to disagree over the plant's dumping of material as well as its inability to move the material to other acceptable locations for nearly two years.

As Regency finances deteriorated in early 2008, so did Environmental Reclamation's operation, according to documents on file with the DNR.

At the same time, state officials began a review of the records relating to the loan that Environmental Reclamation had obtained in 2003 under the DNR's Solid Waste Alternative loan program, a program used to encourage recyclers to find alternative methods for disposing of recycled material.

What they learned was that their loan to improve the property wasn't to Scott Street Properties, which was listed as the land's titleholder. Instead, the loan was to an operating company named Metro C&D Recyclers, according to a letter sent to Regency lawyer Tim Hogan from Tack on March 12.

In his letter, Tack raised questions about whether the state might have to investigate "whether fraudulent practices have been engaged in to defraud the State of Iowa" because "it has been observed that Metro C&D Recyclers and Scott Street Properties were incorporated on the same date, at the same time, by the same organizer and purportedly involving the same or very similar ownership interests."

The state-sponsored loan, financed by tonnage fees charged to landfill users, provided the $448,000 to help pay for an improved electrical system, a sprinkler system and pavement improvements at the facility.

"What happened is that the department ended up loaning a half-million dollars for real estate improvements to a tenant," Tack said. "I don't think we would do it that way if we knew it at the time of the loan."

Tack stated in a letter sent to Hogan in April that the Metro C&D loan application included assertions that the company would enter into a purchase agreement and buy the property.

"It makes it a lot more difficult for us to collect now when the loan recipient has morphed multiple times into different entities," Tack said.

Hogan disputed Tack's contention in a letter in April and claimed that any mistakes belonged to the DNR.

"The titleholder and the operator of this recycling facility have always been separate entities," Hogan said. "This relationship has been disclosed in various dealings between the department and the recycling facility. The titleholder was a matter of public record at the time of the contract."


New York partners surprised at other partners' deal

Lawyers for John, Tonyanne and Hans Taylor of Montgomery, N.Y., have accused Regency officials of fraud for transferring the recycling plant property they owned jointly with James Myers, Robert Myers, Gamble and Moffitt from their company into another Regency partnership.

Court records say that the Taylors acquired a 50 percent interest in Scott Street Properties on March 4, 2004, as part of an overall partnership agreement to help operate the recycling plant. The Taylors' lawsuit also claims that the primary asset of Scott Street Properties was the land located on Scott Avenue.

But in November 2007, Regency executives transferred the Scott Avenue property to a new partnership, Regency Capital Fund LC, which remains the owner of the recycling plant property today.

Court and county records also show that Regency Capital Fund mortgaged 19 properties, including the plant property on Scott Street, to obtain loans from JPMorgan Chase totaling $26.5 million on Dec. 7, 2007. Court records filed in the Taylor case show Regency Capital Fund has 21 partners, including the Myers brothers, Moffitt, Gamble and Hogan.

The property transfer and $26.5 million in loans came at a time when Regency was in dire need of capital. In fact, Regency officials have claimed in a lawsuit against Wells Fargo that financial demands on the builder at the end of 2007 "made it impossible" for the company to function.

In the first four months of 2007, Wells Fargo told Regency that it would not renew the company's line of credit and told the Myers brothers, Moffitt and Gamble that their personal lines of credit, totalling $5.25 million, would not be renewed.

In December 2007, Wells Fargo began demanding all net proceeds from sales of property on which it had a mortgage. In January 2008, Wells Fargo filed lawsuits against Jamie Myers, Robert Myers, Moffitt and Gamble, saying they were in default on $5 million in loans.

The Taylors were surprised to find out in July 2008 that the land had been transferred to the Regency Capital Fund.

The Taylors said in court documents that they learned of the property transfer only after they were served with a lawsuit demanding that each Taylor was personally liable for as much as $500,000 for a $1 million defaulted loan from Northwest Bank of Cedar Falls.

The Taylors also claim that Regency officials attempted to mislead them in 2006 when they had signed two agreements to dissolve their partnership, but Regency lawyers failed to complete the dissolution.

Polk County Judge Eliza Ovrom recently ruled that Regency officials will ultimately be held liable to indemnify the Taylors for any costs of the Northwest loan.

But the Taylors fear - given the millions of dollars in default judgments against the four Regency executives in other cases - that they will be forced to make good on the loans with no chance of recouping their money.

James Myers declined to comment, on the advice of legal counsel, but Sieman, spokeswoman for the Myers brothers, said that there are two sides to every story.

"There is more to the story than what the Taylors are saying," Sieman said. "There is substantially more to be heard about what really happened."

In a court filing last week, Regency officials denied all allegations against them and demanded that the lawsuit filed by the New York investors be dismissed.


DNR's other challenge: Clean up waste, debris

Department of Natural Resources officials are trying to figure out how to clean up both the recycling plant site and the truck stop site in Bondurant.

Tack said that cleanup of both sites could cost as much as $1 million, but there may not be enough money available to the state to make that happen.

DNR officials ordered the plant's solid waste processing permit to be terminated permanently in October. In addition, DNR officials ordered company officials to submit a plan for cleanup of the site by Nov. 9 and for completing closing by Dec. 9.

But company officials have not complied and face the loss of a $100,000 letter of credit that state officials say will be used to pay for site cleanup.

In addition, Regency executives have failed to remove any of the material stockpiled in Bondurant, in violation of a DNR order dated April 7. In that order, company officials were ordered to remove all stockpiled material by Nov. 1 and the rest of the material by Dec. 31.

Failure to comply with the order results in the imposition of the $1,000-per-month fine. On Nov. 17, DNR officials informed company officials that they continued to be in violation of the cleanup order for the Bondurant site and were fined $1,000.

Tack said that state officials are running out of patience and would be willing to forgive the loan to get both areas cleaned up.

"The department's priority with the funds is the cleanup," Tack said. "So if we have to choose between repayment of the loan and cleanup of the sites, particularly the Bondurant site, we will choose the cleanup."