At Talmage’s suggestion, PERS became one of the top three investors in this new fund, according to the lawsuit, which then lured an additional $ 55 million from an unidentified foreign insurance company and a pension from ‘a private company. These new investors could be charged a fee much higher than the 0.50% Shugrue’s company was collecting annually from PERS, according to the litigation.
That’s when the bickering started, state attorneys say.
First, Shugrue sent a note to PERS saying that it would be in the “best interest” of the boarding house to sell the posh Inn of Chicago mortgage to its new investment fund at 50% of its face value. , depending on the dispute. Talmage, state prosecutors say, had had a glimpse of the hotel’s books and therefore knew its true value, as they were serving the mortgage through a side deal.
But the mortgage, which had been split into three secured debt instruments called CDOs, was contractually to be auctioned, not sold, according to the lawsuit.
“Talmage misled the CDO trustee into convincing him that (the investment fund) had won a competitive auction process when in reality none had taken place,” according to the lawsuit. “Talmage simply fabricated competing offers.”
The trustee got wise and asked for proof of competing bids for the third and final auction, so Shugrue employees called two unidentified Wall Street companies and asked them to submit low numbers, according to the lawsuit.