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Elderly couple files fraud suit against Kirkland Councilman Bob Sternoff
An elderly couple has filed a civil lawsuit against Kirkland Councilman Bob Sternoff, claiming he defrauded them out of $70,000.
The couple’s claim adds them to the long list of creditors that Sternoff owes, calling in loans and fees totaling more than $8.4 million.
Sternoff owned and managed several real estate development companies, most recently Sternoff Custom Homes that lost its business license in July 2012, according to the Department of Revenue. The loss of his business and the debts he owes forced him into receivership and liquidation.
Appointed by King County Superior Court on March 6, the liquidator will distribute Sternoff’s more than $7.5 million in assets to his creditors.
But Sternoff also blames part of his financial woes on a former employee, claiming the worker embezzled an undisclosed amount of money from his company.
The elderly couple– Weyman and Annie Wong, of Kirkland – filed the civil lawsuit against Sternoff on Nov. 20, 2012 in King County Superior Court.
The complaint alleges that Sternoff defrauded them out of $70,000 through the use of fraudulent conveyance.
The Wongs met Sternoff through their daughter Julie Wong, whose realtor introduced her to the councilman about 15 years ago when she and her husband moved to the area.
Julie said Sternoff asked her for a quick loan of $70,000 in May 2011, when Sternoff’s company was in the process of building her Yarrow Point home where she currently lives. At that time, her parents were living with her.
Since Julie and her husband were already paying what money they had to Sternoff’s company, she asked her parents.
“I thought he was a trustworthy person, so we said OK for one year,” said Weyman, who is 83 years old. “We didn’t think there would be any kind of problem.”
The Wongs negotiated an agreement that stipulated the couple would loan Sternoff the funds and he would repay the money in 12 months with 12 percent interest, for a total repayment of more than $78,000, according to court documents.
“It was a quick loan for one year. They felt that for one year they could part with that money for a good return because the loan was at 12 percent [interest],” said Julie, noting that Sternoff told her mother he needed the loan to repay a bank loan with Wells Fargo. “So my mom said, ‘hey, that’s a good deal.’”
The parties allegedly signed a promissory note on May 18, 2011, when the couple gave him two checks on two different accounts for $60,000 and $10,000, the documents continue.
The next day, Sternoff allegedly cashed and deposited the two checks, and transferred the funds out of his personal checking or savings account “with the intent to hinder, delay, or defraud” the Wongs, according to the complaint.
Julie said Sternoff was supposed to repay her parents in June 2012, “but nothing happened, nothing happened. He was still working on my construction, so we thought, oh well, he’s still around. We didn’t know.”
Last October, she claims Sternoff called her and acknowledged the debt.
“He told me that his former employee had stolen everything and all he had was 75 cents to his name,” said Julie.
The Wongs filed suit in November, claiming that Sternoff failed to comply with the terms of the promissory note. The complaint also includes 10 other unknown individuals or entities referred to as John Doe transferees that allegedly received assets from Sternoff so he could “further his scheme and avoid repayment to the Wongs,” according to the complaint.
The couple is asking for judgement against Sternoff in an amount to be determined at trial, plus attorney fees.
Sternoff told the Reporter he would let the “legal process take its course” and declined to comment further about the civil lawsuit or his embezzlement claim against his former employee.
Sternoff denied all of the couple’s allegations in the court filing. He also accused the couple of “unclean hands,” the documents continue.
But the Wongs say they are in disbelief and considered Sternoff their friend.
Julie recalled visits to Sternoff’s Lake Chelan vacation home, and an excursion with her parents on his boat to watch the Blue Angels in 2011.
She pulled out two photos, one showing her mother sitting on the back of Sternoff’s motorcycle behind him. Annie said she always wanted to ride a motorcycle, so he took her for a ride on his Harley for her 70th birthday.
“I like it. He drove us past his house,” recalled Annie, who is 82 years old.
The other picture shows Julie and her father holding up Sternoff’s re-election campaign sign in 2011 during the 4th of July celebration in Kirkland.
“He’s somebody who we knew and we trusted,” said Julie, noting she and her husband contributed $100 to his campaign.
The Wongs claim that Sternoff wiped out nearly their entire life savings.
“I’m taking medication for this,” said Weyman. “I’m upset too. I’m losing sleep, it’s hard for me. The doctor gave me medication to calm me down.”
He said he also cannot trust Sternoff as his council representative.
“You wonder about the leadership in the city, having a person like that on the council,” he added.
Annie said she can’t sleep either because the court process is “dragging too long. [Sternoff] is trying to drag it. Then in the meantime we’re paying the lawyer fees.”
Julie, who is acting on her parent’s behalf in court because they are hearing impaired, said she is outraged.
“These are old people – who does that,” she said, crying. “You borrow something, you pay it back. This is a person who has a Harley. What does he need [their money] for?”
Julie also has a $30,000 claim for damages against Sternoff regarding a construction dispute on her home. She has not brought any litigation against him.
However, she recently filed a complaint with the Washington State Department of Labor and Industries. She states that she paid Sternoff $15,000 for the construction of her house elevator in September 2012 during a time of which Sternoff’s business license with Sternoff Custom Homes was suspended. She claims Sternoff paid $13,000 of those funds to a contractor but believes he did not report the taxes on the $2,000 difference.
The Department of Revenue indicates that three of Sternoff’s companies have expired accounts and therefore expired licenses. Business licenses for Sternoff Custom Homes LLC expired on July 31, 2012; Sternoff Development Inc. expired on March 1, 2011; and Sternoff Development II expired on November, 13, 2006.
Labor and Industries is still in the preliminary stages of investigating Julie’s claim.
In addition, the Wongs also filed a complaint in February with the Washington State Public Disclosure Commission, stating that Sternoff falsified information on his form F-1 Personal Financial Affairs Statement for 2011. They say Sternoff did not disclose his alleged $70,000 loan debt when he filed on April 5, 2012, which they are alleging is a violation of several Washington laws.
The Public Disclosure Commission has begun a preliminary review but has not yet determined whether a formal investigation will commence.
Violating such laws could mean a series of fines but penalties are subject to what the PDC deems necessary.
If the investigation finds Sternoff is in violation of the law, Sternoff could face violation of the Kirkland Code of Ethics as well.
The court ordered Sternoff to pay the Wongs $1,250 on Feb. 22 for failing to appear at his scheduled deposition.
When he failed to pay the fee within 10 days, the Wongs filed a motion on March 13 for the court to hold him in contempt.
However, on March 6 the court ordered a third party, Resource Transition Consultants, LLC, to take possession of and liquidate Sternoff’s assets to pay off his creditors.
The receivership has frozen his assets for 60 days, along with the court process.
According to court documents, there are seven secured claims against Sternoff from creditors, totaling more than $8.4 million.
His largest debt is more than $4.2 million he owes to Chase Mortgage for the deed of trust on one of his homes.
Other large debts include more than $1.4 million he owes to Banner Bank for his 33 percent share of the Cedarbrook Mobile Home Park in Black Diamond, more than $1.2 million he owes to Wells Fargo for the Bel-Red Office Park that he co-owns with his brother, and $1.1 million he owes to US Bank National Association for his Kirkland home located at 255 7th Ave. S.
Both his Kirkland and Chelan homes have been in and out of foreclosure. According to court documents, Sternoff received his final notice of foreclosure for his Kirkland home on March 6 and was given until March 26 to pursue mediation.
Sternoff also has a second home in Chelan County that he owes $70,000 and is also being foreclosed. The home was set to be auctioned off on Friday.
Two additional creditors also filed unsecured claims against Sternoff in the receivership totaling nearly $19,500.
Documents also indicate that he is disputing a claim from the Department of Revenue against him that he owes more than $4,300 in B&O taxes.
An additional 18 creditors are listed as holding “unsecured nonpriority claims” against Sternoff, totaling more than $550,000.
These balances include $30,000 due to Cessna Finance Corporation for the repossession of his Cessna plane, unpaid sales taxes of more than $3,100 to Eastside Drywall, personal loans from his family members totaling $330,000, credit card purchases and other fees he owes to companies that his business contracted to do work on homes.
Bob Linger, owner of Ravensdale-based Eastside Drywall who holds one of the unsecured claims listed in the receivership, said that Sternoff owes him money for work on a home in Yarrow Point.
Linger filed suit in small-claims court this month.
“He lied to us on the last house we did,” said Linger. “He burned me for $3,200. He is playing dirty pool.”
Builders and contractors have to agree on who will carry the resale permit and pay taxes on work performed. According to Linger, in most cases the builder carries the permit.
“He chose not to and never let us know,” said Linger. “I didn’t find out until the Department of Revenue contacted me and I had to pay [the taxes].”
Ultimately, the builder is supposed to pay the sales tax.
“Legally he can drop the resale permit but he has to let us know,” said Linger. “When I tried to talk to him on the phone about it he just ignored the subject and kept saying that his [project supervisor] stole the money.”
Linger said that he has known the man who Sternoff claims stole money from him: “He wouldn’t steal bubblegum.”
“In all the years I have been in business there has only been him (Sternoff) and one other guy that did this, and it was at the same time,” said Linger. “But the other guy apologized and stepped up to make payments.”
Also included in the list of unsecured claims is $33,000 to Julie for an alleged breach of contract on her Yarrow Point home, and more than $100,000 to her parents for the personal loan he allegedly borrowed from them.
Court documents also indicate that Sternoff has more than $7.5 million in assets. This includes his $1.3 million vacation home in Chelan; his Kirkland condominium worth more than $1 million; his Kirkland house worth $1.1 million and various properties that he owns shares in across the region.
He also owns several items of personal property, including stock with Ford Motor Company, a Chevy truck, Harley Davidson motorcycle, GMC Denali and BMW, all totaling more than $40,000.
Receivership documents also indicate an embezzlement claim against Sternoff’s former employee for an unspecified amount.
Soon after the Wongs filed their lawsuit, Sternoff filed a police report with the Kirkland Police Department against his former employee.
The KPD is currently investigating the case, however they would not release those public records as it is an active investigation.
The Wongs’ attorney sent the City of Kirkland a letter on Feb. 5 expressing their concerns with Sternoff allegedly using his position as city councilman “inappropriately” by requesting that the KPD conduct an investigation into alleged business fraud.
The attorney said the matter was “purely civic in nature” and claimed the councilman was seeking “special favors from public officers.”
In a letter from Kirkland police Chief Eric Olsen to the Wongs’ attorney, Olsen wrote: “Rest assured that Mr. Sternoff has never inappropriately used his position as council member to request, control, or pursue an investigation. As a resident of the City of Kirkland, Mr. Sternoff has simply filed a police report regarding alleged fraud by a former business partner.”
He said the detective will continue to investigate the case and will then submit his investigation to the King County Prosecutor’s Office to determine if charges should be filed.
The Reporter does not name suspects if charges haven’t been filed.
The former employee, who asked to remain anonymous, denied embezzling any money from Sternoff’s company.
He believes Sternoff filed the police report in retaliation against the Wongs for filing a civil lawsuit. He said Sternoff accused him of taking “”a couple of medium-sized draw checks,” noting those checks totaled $30,000.
Police also questioned Julie about the case, noting she was a witness to the checks in question for work that was done on her home. She said the former employee did not take the funds, but that she gave the checks to the contractor who installed her elevator.
“Somehow [Sternoff] was saying he was entitled to that money,” said Julie.
The former employee started working for Sternoff’s company in 2008 through 2012.
He said one of his first “points of tension” with Sternoff was when the councilman allegedly bought two Harley Davidson motorcycles and had them customized.
“He entered them into some show in Vegas. He continued to feed this bike guy money to have them customized.”
He added that people have trusted Sternoff and loaned him money because of his assets, however, “he’s been selfish in the way he holds his assets.”
The former employee also said he believes Sternoff has a “reckless pattern of borrowing – that is part of what has taken him down. There are a lot of loans out there. For years I sat with him while he robbed Peter to pay Paul.”
He said during his work on Julie’s Yarrow Point home, Sternoff only showed up a couple of times.
“I think he’s going through things and if he doesn’t understand what it is, he assumed I took those checks,” said the former employee. “He made some strong accusations against me. I’m the scapegoat for sure. He’s pinning all of his financial issues on me.”
Reporters Raechel Dawson and Matt Phelps contributed to this report.