A New York state self storage operator is caught in the middle of a lock down of financial records stored by the Albany brokerage firm McGinn, Smith & Co. McGinn Smith is the subject of an SEC investigation for financial fraud. The self storage operator, Mark Rekucki of Clifton Park Self Storage, initially agreed to allow McGinn Smith to rent 11 units free of charge for the month of April, while the firm was looking for new offices. The units were used to store McGinn Smith’s financial records. But late in April, the SEC formally charged McGinn Smith with securities fraud, and the storage units were raided by federal agents. Since then, no one has paid any rent on the units, and Clifton Park Self Storage alleges that it is owed more than $5,000 in back rent.
Rekucki made an oral agreement with McGinn Smith’s president before the company moved its records into the units. He had hoped to match the firm up with one of the other self storage facilities that he operates, and agreed to provide free storage in April, with the understanding that if storage was needed for a longer period of time, McGinn Smith would enter into a month by month contract for $145/month in rent for each of the 11 units. McGinn Smith’s president, David Smith, and his wife, Lynn, were long standing tenants at Clifton Park Self Storage, and Rekucki trusted Smith to live up to the agreement.
Unfortunately, the SEC filed its complaint against McGinn Smith on April 20 and froze the company’s assets. It also raided the homes and froze the assets of Timothy McGinn and David Smith, the company’s owners and co-founders. The SEC complaint charges McGinn Smith with defrauding investors by selling $89 million in unregistered securities. Investors’ funds, the complaint alleges, were misused, while loans from the funds were made to Smith personally and to 26 business entities held by McGinn Smith.
Neither McGinn Smith nor Smith himself can pay Clifton Park Self Storage’s rent, since the company assets and Smith’s personal assets have been frozen. But the company’s receiver, lawyer William Brown of Phillips Lytle, is able to use funds from McGinn Smith’s “frozen” estate to pay the company’s expenses. But, Brown points out, there is no signed contract between McGinn Smith and Clifton Park Self Storage for the units that McGinn Smith is occupying (now consolidated from 11 down to nine). As far as Brown is concerned, as far as available documents can show, the units were made available for McGinn Smith for free, for an indefinite period of time.
On the other hand, it is customary to pay for the rental of self storage facilities, and Clifton Park Self Storage clearly states in its advertising materials and on its website that it charges for use of its units. According to business lawyers familiar with the self storage industry, it is not likely that a judge would require a self storage facility to provide its services for free simply because an investigation was going on. The government, if it needed the files so badly, could simply seize them and store them in its own warehouses. Rekucki could send an eviction notice to McGinn Smith, care of its receivor, Brown -- or at least an invoice.
Ordinarily, Clifton Park Self Storage does send invoices to its tenants for monthly rent, and if units were occupied for such a long time without rent being paid, the facility would install a bright red “overlock” on each of the delinquent units, preventing access to the units until the accounts were paid. But Rekucki, obviously intimidated by the fact that a federal investigation is going on, has not installed an overlock at this point. He intended to send an invoice in July, but held off, because he was not sure whether it was the proper thing to do or who he was supposed to send the invoice to.
“I feel like I’m being stepped on,” Rekucki told his local newspaper, The Times Union, today. “They’re using my facility, they’re using my services, and I don’t know if I’m going to get paid.”
Fortunately, according to The Times Union, Rekucki and Brown are now in contact with each other and should sort the matter out.
Sources used:
Clifton Park Self Storage.
“N.Y. self-storage operator unpaid, units on lockdown in financial-records fiasco.” Inside Self-Storage. Aug. 23, 2010.
Pinckney, Barbara. “Regulators charge McGinn Smith with securities fraud.” The Albany Business Review. April 19, 2010.
Woodruff, Cathy. “Records lockdown locks up storage units.” The Times Union. Aug. 23, 2010.