General Development Corporation: the fraud case, the bankruptcy and the reversal

Port Malabar, the Palm Bay development whose name survives in Port Malabar Boulevard, belonged to General Development Corporation: a 1966 study done for NASA lists the Port Malabar water and sewer systems among those “operated by the General Development Corp.” How the company sold its Florida homes in the 1980s ended in a guilty plea, a bankruptcy, a federal trial of its leaders, and a reversal.

The company

The federal appeals court that heard the case summarized GDC’s history. In the 1950s the company began buying huge tracts of undeveloped land around Florida, and it eventually created nine separate communities. It built the infrastructure first, more than 3,700 miles of paved roads in all, then sold lots and homes, and let local builders put up houses on lots bought from GDC and sell them in competition.

How it sold

By the 1980s, the court found, GDC was selling some of its homes for much more than independently built houses in the same neighborhoods. It sold mainly to buyers in the “snowbelt” states, marketing its communities as a place for a second home. Buyers could start with a lot and later trade it in, with any “appreciation,” as a down payment on a house. GDC’s own subsidiary, GDV, handled the financing, and its appraisals compared a home only with other GDC homes nationally, not with what sold nearby. Prospects were flown down on “Southward Ho” trips and steered toward GDC homes. Official policy forbade selling the homes as investments, but some salesmen told buyers they were safe investments and that rent would cover the mortgage.

The plea and the bankruptcy

Buyers complained, sued, and the U.S. Attorney’s office opened an investigation. According to the court, GDC itself pleaded guilty to fraud, set up a $169 million fund to pay customers, and filed for bankruptcy under Chapter 11.

The trial and the reversal

The government also indicted the company’s top managers for fraud and conspiracy in the sale of GDC homes between 1982 and 1989. After a nine-month trial, four were convicted:

Defendant	Role	Verdict	Sentence
David F. Brown	Chairman after the 1985 public offering	1 conspiracy count	5 years
Robert F. Ehrling	President from 1980	39 counts	121 months
Tore T. DeBella	Senior vice president of marketing	39 counts	97 months
Richard A. Reizen	Executive	1 conspiracy count	5 years

Each was also ordered to pay $500,000 in restitution. On April 16, 1996, the U.S. Court of Appeals for the Eleventh Circuit reversed all four convictions. It held that the evidence did not show a scheme “reasonably calculated to deceive persons of ordinary prudence”: GDC had no general duty to disclose that its prices were higher than its competitors’, the price difference could be found out with a phone call or a look at the classified ads, and no one alleged that GDC misrepresented the quality of the homes.

Palm Bay’s own growth is on our population page.

Further Reading

• Florida: A Short History by Michael Gannon