The Town of Lost Rabbit, a new urbanism community in Madison county, is in the middle of a multi-million dollar lawsuit claiming securities fraud. We take a closer look at what's behind the lawsuit and financial challenges facing the development.
The exclusive community of Lost Rabbit is located on 260 wooded acres in Madison county. Dotted with million dollar views and houses. Few realize Lost Rabbit is operated under the establishment of a public improvement district or PID. Essentially a sovereign government all to it's own, able to issue bonds, and collect taxes from residents and lot owners. Madison supervisors signed off on the PID after public hearings in 2007. Pearl River Valley officials signed off on the PID The property is owned by the reservoir authority.
Allstate Insurance Company purchased 18.6 million dollars in bonds July 17, 2008 through Butler, Snow and Baker Donelson law firms. Money that financed the development, and infrastructure for 278 high end homes, including a 124 slip marina.
Our research reveals that 101 Lost Rabbit lots were sold and houses built by 2006, months before developers approached supervisors to establish a PID in order to secure millions in bond money to bank roll the project.
Another interesting twist, we have learned that developers requested supervisors amend the PID in April of 2008 just prior to Allstate purchasing 18 million in bonds. Amended according to the lawsuit for the purposes of financing and managing the acquisition, construction, maintenance and operation of infrastructure necessary for the Development.
At that point, developers requested and removed 143 parcels from the very expensive PID assessment roll without a public hearing. Our investigation found one vacant , number 4, was assessed $1,945.89. The exclusions add up as a huge loss in revenue.
Allstate claims it depended on collection of special assessments pledged by PID to repay the 18.6 million. The securities lawsuit claims the defendants initially verified the PID was proper and valid. Now Allstate maintains the law firms misrepresented claims about the PID and failed to reveal errors in the formation of the District.
The lawsuit alleges, the Butler Opinion Letter was false and misleading because the District was not duly created and validly existing as a local unit of special-purpose government of the State of Mississippi and a public improvement district created in accordance with the Act, with the power to perform its obligations to collect special assessments pledged for payment of the Bonds. The Butler Firm knew, or in an extreme and reckless departure from the standards of ordinary care, failed to learn that the Butler Opinion Letter was false and misleading. It further states, the Bonds could not and would not have been issued had the Baker Firm refused to issue the Baker Opinion Letter.
Facing financial and legal hard times, the master plan for Lost Rabbit continues to be challenged. Yet Pearl River Valley manager John Sigman tells WLBT News,"No matter the outcome of any of this, the reservoir still owns the property and Lost Rabbit will continue to be an outstanding community."
Allstate wants to void and rescind it's purchase of the bonds. The lawsuit states, on July 15, 2011, Allstate provided Defendants with formal written notice of Allstate's demand to void and rescind its purchase of the Bonds and receive payment of any accrued and unpaid interest and any other relief available under applicable law.
Ironically, the new Lost Rabbit majority owners, recently requested that Madison county Supervisors dissolve the PID. We are told that request has been withdrawn by Nichols Reservoir Investments, LLC .
Stunning new developments regarding this case, Allstate suddenly dismissed it's lawsuit late mThursday afternoon. We received this statement from Butler, Snow. "We were never clear on why Allstate even filed this suit. In this case, it seems Allstate may have believed this particular investment wasn't a profitable one; but Allstate's attempt to blame the law firms who merely assisted with the transaction was very disappointing. the suit had no merit and was asked that it be dropped. We were pleased to learn moments ago that Allstate voluntarily dismissed the suit today."
We were advised to contact John Hicks, general counsel for Baker, Donelson. Mr. Hicks was not available.
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