April 20, 2012--NORFOLK -- One of the owners of the Wainwright Building has been indicted on federal fraud charges involving historic tax credits he received for another downtown property, the old James Madison Hotel, and a Ghent apartment building.

George Hranowskyj was arrested Thursday morning in what authorities say is an $11 million fraud in which he is accused of pocketing $8 million.

U.S. Magistrate Judge Tommy E. Miller ordered Hranowskyj jailed pending a  bond hearing Tuesday. Hranowskyj protested, to no avail. Assistant U.S. Attorney Katherine Lee Martin told the judge that Hranowskyj is both a risk of flight and "a serious risk" of obstructing justice.

The indictment says Hranowskyj used millions of dollars for his own benefit and did little to rehab the former James Madison or the Ghent apartment building at 742 Princess Anne Road just off Colley Avenue.

Hranowskyj used the proceeds to purchase other real estate, fund investment accounts, purchase automobiles (including a 1969 Shelby Mustang), boats, antiques, Civil War memorabilia and other items, according to the indictment.

His business partner, Eric Menden, is not named in the indictment but appears to be listed as "conspirator A." A separate indictment, under seal as of Thursday, is expected to be opened today, naming Menden as a fellow conspirator, according to several sources close to the case.

"The fraud alleged in the indictment represented a gross manipulation of the tax system which harmed the community, taxpayers and the government," John Boles, the head of the Norfolk FBI office, said in a statement.

U.S. Attorney Neil H. MacBride said agents with the FBI, the Internal Revenue Service and other agencies conducted a lengthy investigation into a complicated long-term fraud scheme. MacBride and other officials have scheduled a news conference for this morning to discuss the case in more detail.

The federal government operates a preservation tax incentive program that allows owners of historic properties to obtain federal tax credits equal to 20 percent of the cost of rehabbing a particular building. The state offers tax credits equal to 25 percent of the cost. The Virginia Department of Historic Resources, which administers the program for the state, worked closely with federal agents on the case.

According to the allegations in the indictment, Hranowskyj and "conspirator A" are accused of boosting the tax credits they were eligible for by inflating the amounts spent on renovating the properties.

The two then sold these tax credits to investors for millions of dollars in cash, which they spent largely on themselves and not on the rehab projects, the indictment says.

As a result, the federal government and the state of Virginia lost millions in tax revenue when the investors turned in those credits to lower their tax liabilities, the indictment says.

The James Madison Hotel, formerly called the Commodore Maury, was once one of the grandest hotels in downtown Norfolk. By the 1970s, it had fallen into decay. It was rehabbed in the 1980s and brought back to its original condition.

Age and competition again caught up with the building, and it closed as a hotel about seven years ago. Hranowskyj and Menden purchased it for $5.1 million and initially planned to turn it into condos. But when the real estate market collapsed, they changed course and decided on offices instead.

To refurbish it, they obtained a $12 million loan from the Bank of the Commonwealth. In their application for tax credits, they claimed they would spend $11 million on renovations, the indictment says.

A similar scheme was used after they purchased the Mercer Apartments at 742 Princess Anne Road, according to the indictment. They claimed in their tax credit application that they would spend $4.5 million to renovate the building.

It's not clear exactly how much they actually spent on renovating the properties.

The two also run a company that owns the Wainwright Building in downtown Norfolk's historic Freemason area. The building is currently the subject of bankruptcy proceedings and is not involved in the criminal case.

In U.S. District Court on Thursday, as Hranowskyj made his initial appearance before the magistrate on the first floor, Menden was up in a fourth-floor bankruptcy court trying to save the Wainwright Building. Menden declined comment. The bankruptcy judge denied their reorganization plan but gave them time to come up with a better plan.

Tim McGlone, 757-446-2343, [email protected]

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Document -- Indictment of George Hranowskyj

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(c)2012 The Virginian-Pilot (Norfolk, Va.)

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