A real-life K-drama involving a roughly
$50 million retail complex on Keeaumoku Street has taken a new turn with fresh allegations of fraudulent ownership after a federal judge recently decided what should happen to the property.
The complex, known as Keeaumoku International Village and largely filled with Korean restaurants and retailers, is tied up in U.S. Bankruptcy Court after the owner, a subsidiary of a Korean company, sought Chapter 11 protection last year to avoid foreclosure.
Foreclosure was avoided, but the bankruptcy case also sorted out competing claims for control of the property between people, including a widely known Korean singer whose husband reportedly committed suicide after he was determined to have embezzled money from another Korean company.
Bankruptcy Judge Robert Faris confirmed a reorganization plan in February for the property’s owner, Cuzco Development U.S.A. LLC, to convey the property to the company’s CEO Shawn Lee, who is also known as Dong Woo Lee.
That arrangement resolved a set of complex disputes that included allegations that relatives of one of the original founders of Cuzco unsuccessfully tried to sell the property and then fraudulently leased the property to another company to prevent Cuzco from operating the complex, which has about 40 tenants.
The competing claims of control affected tenants, some of which were told they had invalid leases and should not pay their rent to Cuzco. The city also was not paid property taxes for two years and was owed $600,000.
Cuzco was able to end the disputed lease under bankruptcy law and win back management of the property with approval from Faris.
To resolve Cuzco’s unpaid debts, Lee was going to acquire the property and spend $5 million to pay off creditors after he spent $400,000 to keep the property operating prior to bankruptcy, per court records.
During a February hearing on the reorganization plan, local investors Donna Walden and Giampaolo Boschetti offered to pay
$45 million for the property also known as Keeaumoku Shopping Center, but their bid wasn’t accepted.
Under the reorganization plan confirmed by Faris, Lee faces a Dec. 31 deadline to refinance a $26.5 million loan secured by the property. If that deadline isn’t met, or if the loan with D-Day Capital LLC goes into default again, the property would be auctioned to the highest bidder in Bankruptcy Court in Honolulu.
However, another Korean company now contends that Lee was fraudulently made Cuzco’s CEO, that he has no lawful ownership stake in the company and that he would end up with a roughly $20 million windfall if he were given ownership while other shareholders of Cuzco’s parent company would get nothing.
This claim was made in Bankruptcy Court in March by Tera Resource Co. Ltd., a Korean company that produces oil in Russia and was formerly in the entertainment business.
Tera’s claim, filed by local attorneys Andrew Beaman and Simon Klevansky, adds another wrinkle to the contested ownership of Cuzco.
According to court records, two investors from South Korea, Doo Sup Byun and Gunil Kim, formed Cuzco Korea and its Hawaii subsidiary in 2007 to buy the Keeaumoku Street property for $49 million that year. The only asset of the Korean parent company is its Hawaii subsidiary that owns the retail complex, according to court filings. Court
records also show that financial difficulties at the shopping center stemmed in part from tenant businesses that were owned by friends or relatives of Byun and didn’t regularly pay rent.
Byun owned 50 percent of Cuzco’s parent company, which passed to his wife, Korean singer Soo Kyung Yang, when Byun died in 2013. Tera said Byun was its former CEO who was determined by a court in Korea to have embezzled $1.5 million from Tera before he committed suicide.
Tera’s claim contends that Yang, the widow, had her shares in Cuzco seized by a court in Korea last year and that Lee, Cuzco’s current CEO and a friend of Yang, bought 120,000 shares in the parent company for $360,000 in a bogus collusive move to take control from Tera and other shareholders.
Tera contends that Lee has misrepresented facts to Judge Faris in what constitutes a fraud on the court, and that the bankruptcy reorganization plan would allow Lee to wipe out what Tera claims is a $15.8 million debt that Cuzco owes to its Korean parent company. Tera also claims that auctioning the shopping center is the proper option to benefit creditors.
Bankruptcy attorneys representing Cuzco and D-Day Capital call Tera a 2 percent minority shareholder that has made “fairy tale” arguments, and said any disputes tied to the ownership of Cuzco’s parent company can be determined in a separate court proceeding and remedied by monetary damages if warranted.
“A 2 percent shareholder of the debtor’s parent cannot hold a confirmed plan hostage,” said the filing by Honolulu attorney Chuck Choi, representing Cuzco, and California attorney Ronald Richards, representing D-Day Capital.
Choi and Richards said Tera is a disputed shareholder of Cuzco’s parent company and therefore does not have the right to contest the bankruptcy case of its Hawaii subsidiary.
Judge Faris issued a temporary restraining order last month preventing Lee from moving ahead with the reorganization plan, and during a hearing Monday said he was inclined to vacate his confirmation of the plan. Faris also said he was inclined to hold a hearing to consider whether he should appoint an independent trustee to control Cuzco while it is in bankruptcy.
“It just seems to me we need a disinterested fiduciary in the case at this point, given that nobody seems to agree on who should be in control,” he said.