CLEVELAND Outside investors in The Cleveland International Fund are questioning the authority of E. Eddy Zai, the local financier who owns controlling interest in the business fund, to assign $21 million in projected monthly payments on four major downtown properties to pay restitution to NCUA for his role in the massive fraud at St. Paul Croatian FCU.
The ownership dispute over the Flats East Office and Retail buildings, Westin Hotel, American Greetings Headquarters and University Hospitals Healthcare Systems offices jeopardizes the restitution deal, the biggest ever for NCUA, which has projected a loss of $185 million on the huge fraud.
Zai pled guilty Nov. 6 to obtaining $20 million of fraudulent loans from the credit union and is scheduled to be sentenced in federal court Feb. 20. As part of the guilty plea, Zai agreed to direct monthly payments due The Cleveland International Fund from the downtown projects to an escrow account that would accrue as restitution to NCUA.
But outside investors in the Fund have challenged the unprecedented deal, asserting since Zai does not own all of the Fund he has no right to assign the payments due the Fund to the restitution agreement. The investors say they had no knowledge of Zai’s illegal activities. “The money provided to the developers pursuant to the financing agreements is raised from third-party investors, not The Cleveland Group or Mr. Zai,” say the investors in documents filed with the U.S. District Court for the Northern District of Ohio. “These third-party investors did not participate in or have knowledge of any of the activities that led to Mr. Zai’s conviction.”
Zai confessed to paying tens of thousands of dollars in cash bribes to Anthony Raguz, the former head of St. Paul Croatian FCU, the one-time $240 million credit union that collapsed in 2010 , in order to obtain the loans. Raguz pleaded guilty to bank fraud, money laundering and bank bribery and was sentenced in November to 14 years behind bars.
More than two dozen credit union members have been convicted in the scheme, including Koljo Nikolovski, a purported Croatian crime figure, who in May was found guilty of obtaining more than $6 million in fraudulent loans, most of which was wired to banks in Croatia and Albania. Nikolovski was convicted of paying other members , including his ex-wife, ex-brother-in-law and nephew, to obtain loans that were redirected to him, is appealing his conviction.