Lucky to be alive, fire victim faces Ponzi lawsuit

Flames that consumed Robert Hetsler’s car in a Jacksonville parking lot left his life and his chain of businesses in ashes.

“The car just blew up,” Hetsler told a policeman who found him horribly injured and walking aimlessly near the debris of his performance-modified Ford Mustang.

The financial adviser/investor had been across town from his $1 million house, alone at 3:25 a.m. in a car he’d just bought, when the ball of fire behind a San Marco office building burned him nearly to death in November 2017.

What started the fire is a mystery.

But when the businessman went into a coma, that question gave way to another that people around the country demanded to know: Where was their money?

“We called hundreds of times and no one answered,” a client who had left money with Hetsler’s company wrote on a website for real estate investors.

Just 12 days after the fire, Hetsler was named in the first of five lawsuits that claimed he had misused clients’ money. In total, 28 clients said they’d lost $6.5 million, plus costs caused by that loss.

“Robert Hetsler operated the business … as a ‘Ponzi’ scheme by defrauding clients,” attorneys argued later in a lawsuit for a company his wife had hired to liquidate his firm, Hetsler Mediation & Valuation.

That case is still trudging through courtrooms more than a year and a half later, while the money lost strains his former clients.

“I’m never going to do it like this again,” said Amrik Rathaur, a hotel operator in Indiana who tied up $238,000 with Hetsler’s business to avoid paying taxes on a real estate deal. “I just wanted to save money.”

But the man in the coma when the court fight started has been home again since April, alert but hobbled by effects of a fire that left third-degree burns on about 60 percent of his body and cost him nine fingers, an ear and the ability to walk.

Big patches of his skin are still raw and covered by dressings that have to be changed regularly. He’s in a wheelchair.

And he’s dealing with what it means to have clients owed millions of dollars.

“I feel horrible that it happened,” said Hetsler, 44, a First Coast native with a law degree and an accounting background who said he talked with FBI investigators this spring.

He’s adamant that clients will get their cash back, plus money that was lost in related claims. He said the money owed now was available when clients first expected it, and would have been delivered then if he hadn't been close to death with no one else briefed on where the money was.

“The biggest failure on my part was I did not have a plan in place” for someone to take over the business for him, Hetsler said.

The business itself was the most unlikely of long shots, a product of experiences that started soon after Hetsler, as a 20-year-old college student, was charged with murder, then put on trial and found innocent of killing an ecstasy-peddling Jacksonville drug dealer.

Released from jail, he became an assistant at the law firm that won his freedom, working there while he earned an accounting degree from the University of North Florida and graduated from Florida Coastal School of Law.

He was never licensed as an attorney but — completely legally — he handled real estate closings for another lawyer, working that way for two years after he launched his mediation company in 2003.

He had side businesses, too, but Hetsler’s background and entrepreneurial bent led him to fill a nearly invisible niche in real estate deals that many investors consider indispensable.

That niche is what got Hetsler sued.

He became a “qualified intermediary,” a tax law term for a middleman who receives his client’s profit from selling land, holds it, then pays it to the seller of a “like-kind property” the client acquires within six months.

The money is literally never in the client’s hands, so the client doesn’t owe income taxes on it until the next property is sold — and an intermediary is needed again. Investors call these deals “1031 exchanges,” after the section of the tax code setting rules for them.

Hundreds of dollars for the intermediary could save many thousands in capital gains taxes, which can be 20 percent of a real estate deal’s profit.

Hetsler stressed to investors that their money was safe, writing on LinkedIn that “only two people on earth have access to our clients’ money … and that is my partner (wife) and myself.”

Hetsler had handled about 300 of those three-sided exchanges since 2015, said his attorney, Andy Dogali, and had dozens in progress when the fire happened.

Not being able to get to their money to finish those exchanges turned investors’ plans upside-down.

“The effect has been really devastating,” said Basel Djazmati, an engineer in Michigan who lost $117,000. “This … [is] the result of seven or eight, maybe 10 years of saving that are completely gone overnight.” Like other clients, Djazmati said intermediaries should be subject to state regulations controlling where investor money is held and was stunned when he learned their industry isn't closely controlled.

Costs to clients were personal as well as financial.

“It was hard-earned money,” said Nimantha Mahotti, a dry-cleaning store owner near Houston who left about $65,000 with Hetsler’s company after selling rental property in Arizona. He had never done a 1031 exchange before and said his Realtor suggested using Hetsler's business. Hetsler's injury not only left Mahotti unable to get his money, it also cost him the down-payments he made on two replacement properties.

“My wife was so upset. We almost got separated,” he said by email.

One person went to the burn unit where Hetsler was unconscious and threatened his life, according to court filings.

Clients in the lurch after the fire networked online, hired lawyers and last year became a special creditor class that lawyers agreed would get priority recovering their money.

Lawyers and liquidators learned while the intermediary was in the hospital that money from the exchanges was mixed with Hetsler’s own cash.

They’re suing to get money in his investment accounts and his real estate investments, which are considerable. Besides his house near Little Clapboard Creek, attorneys want land held by companies he started and self-storage businesses as far away as Central Florida they argue were paid for by “fraudulent transfer” of cash out of the mediation company, which handled the 1031 exchanges.

The 1031 client class has received about a fifth of the money they were owed, class members said, but getting the rest has been slow going.

The waiting needs to end soon, a Jacksonville judge concluded this month.

“I can’t understand why this case has not been resolved,” Circuit Judge Adrian G. Soud told attorneys representing Hetsler, his clients and the company liquidating his business.

Soud said the suit against Hetsler will go to trial in December if it hasn’t been settled by then, and he urged the attorneys to try to resolve the case before a hearing set for Aug. 27.

Dogali told the judge Hetsler already pledged land and accounts worth $8 million to make clients whole. He said Hetsler could offer that only because he had run a legitimate business, not a Ponzi scheme, and has wanted all along to pay clients the money that’s due to them.

“Then why hasn’t this case been resolved?” the judge asked.

Lawyers have argued in front of Soud over whether Hetsler was legally allowed to use money he held from clients’ 1031 exchanges.

Attorney Michael Demont, who represents the 1031 clients, argued Hetsler told clients he would put the money in escrow, which would have kept it safe and eliminated any chance of Hetsler using it for his own investments.

But Dogali said Hetsler only had a duty to provide the money in time for clients to complete their exchanges and could use it as he chose until then.

Dogali said the law allowing 1031 exchanges lets people use a qualified intermediary, like Hetsler, or use other options including “qualified escrow,” which are different choices. In effect, clients choosing Hetsler were deciding not to use escrow, he argued.

Who’s right will matter a lot if the case goes to trial, and not at all otherwise.

Nothing that anyone's arguing changes what's really important in the case, which is the harm Hetsler's clients experienced, Demont said. 

“Those clients’ 1031 funds were the retirement funds for a number of families. They were their nest eggs. It was money needed for health care of the claimants and their families. It was money they scrimped and saved to buy their retirement homes or their dream homes,” Demont said. “While Mr. Hetsler is certainly a victim of his own poor decision making ... the 1031 claimants are also his victims.”

There are still relatively small questions being decided separate from efforts to settle the lawsuit.

Since June, a Jacksonville accountant has been seeking permission to intervene in the case, saying it impacts work he’s doing as the court-appointed receiver of a self-storage business that Hetsler controlled in Macclenny. Jack Meeks was appointed receiver after two investors sued in Baker County, saying they had bought parts of the business but hadn’t received documents showing their ownership. 

While the Jacksonville lawsuit plays out, clients demanding money are still selling and buying real estate, some with new intermediaries.

Tyler Doshier, a Montana investor whose family had about $300,000 with Hetsler’s company, said the title company he uses has an “exchange officer” he’ll pay to do the intermediary’s job next time.

“The fee’s double what Hetsler charged,” he said, “but you get your money.”

Steve Patterson: (904) 359-4263