Posted Online: Dec. 01, 2012, 11:11 pm

The rise and fall of the Yates empire

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By Jon Krenek and Lee Provost Kankakee Daily Journal

Editor's note

The following is excerpted from a package of stories which first appeared in the Kankakee Daily Journal and which examined the rise and fall of Kankakee area developer Gregory Yates, who owed $27.9 million to the Country Bank of Aledo when federal regulators closed it last year.

KANKAKEE — Developer Greg Yates impressed everyone when he bought the old Kroeger building in Bourbonnais, a Kankakee suburb, and transformed it into the space where 100 autistic children now attend Camelot of Kankakee.

During a difficult economy in an area struggling with unemployment, the community took notice of Yates' work through his company, Quality Concepts LLC.

Also taking notice was Blair Minton, another Kankakee area developer who first met Yates because their children played sports together.

The pair put their money and their heads together to build the Hidden Cove Sportsplex in Bourbonnais. Tapping into their considerable access to credit and the backing of the U.S. Department of Agriculture, the businessmen were able to finance the multimillion-dollar project.

Minton also joined Yates in investing in Fyre Lake National Golf Club, a golf-course and housing development planned near Sherrard, south of the Quad Cities.

The projects were among at least 20 Yates undertook beginning in 2008, most of which appeared to be coming off as planned. The golf course, for example, was completed and scheduled to open two years ago.

But the public face was not the full picture. In fact, behind the scenes, Yates and his son, Terrence, knew their dreams were turning into nightmares.

For the many who did business with them, the idea that there were problems, and the depth of those issues, only surfaced in July 2011, when the FBI raided Quality Concept's corporate office in Kankakee.

Both Greg and Terrence Yates are now under federal indictment for conspiracy to commit fraud and bank fraud. Terrence faces additional charges for money laundering. The men both have pleaded not guilty to the charges.

The criminal charges were preceded by a wave of foreclosure suits against many of Greg Yates' properties, bankruptcy for Preferred Property Group LLC, one of Quality Concept's cornerstone companies, and a civil lawsuit filed in September by Minton, his partner in the Hidden Cove Sportsplex.

Both Greg and Terrence Yates declined interview requests by The Daily Journal. Kenneth Carlson, the attorney who represents several Quality Concepts companies for Yates, said: "I don't think it's appropriate for either of us to be commenting with all the current litigation."

The Country Bank of Aledo bankrolled projects

Country Bank of Aledo, which financed nearly a dozen of Yates' projects to the tune of $29.9 million, according to records examined by the Daily Journal, was closed in October 2011 after the Illinois Department of Financial and Professional Regulation alleged it had committed unsafe or unsound banking practices.

The Federal Deposit Insurance Corporation in August 2012 handed Dana Frye, the bank's then executive vice-president, a $30,000 fine and banned him from working in the banking industry.

The bank failure ultimately cost taxpayers $66.3 million, according to FDIC. And court records show Yates owed about $27.9 million of that total through multiple mortgages and loans he took out between 2008 and 2011, which included several USDA-backed loans.

The federal indictment against Yates alleges he defrauded Country Bank of $1.7 million for work at his manufacturing plant in Casey, Ill., that was either inflated in value or never completed.

The FDIC has sued Yates in court over all of the loans under default, and is attempting to recoup losses in a bankruptcy case involving Preferred Property Group LLC, a Yates company that leases building space to Camelot Therapeutic Day School, owns the Renaissance Center and another commercial building in Bradley, and has multiple rental properties in Kankakee.

Minton: I thought he was a good friend

Minton said he was a silent partner in the Sportsplex project and allowed Yates and his son to oversee construction and management of the complex through companies owned by the father and son under Quality Concepts LLC and Champion Development LLC.

Construction was completed in 2009. But it wasn't until the proposed sale to the Bourbonnais Township Park District this year that Minton discovered something was terribly wrong.

A financial audit of the complex uncovered $1.3 million in allegedly fraudulent expenses the pair had charged Minton, according to a lawsuit Minton filed against Greg and Terrance Yates in September.

Court records show that Yates' companies had charged Minton for items such as a $56,000 copy machine that accountants discovered Quality Concepts had only leased.

"He was a good friend of mine, I thought," Minton said.

The lawsuit also alleges that Yates' companies charged Minton $798,541 for construction costs with no supporting documentation. Minton's chief financial officer, David Mitchell, wrote in an email submitted in court documents that the undocumented expenses were "an alarming discovery" and "there appears to be great misuse of USDA funds and assets."

Minton said Yates eventually agreed to let Minton become the managing member. So Minton hired a consulting firm specializing in similar facilities to assess Yates' business plan.

"Unfortunately, I didn't do that first," Minton said. "They said this could never happen and would never do what it was supposed to do."

Counting their blessings

Today, those developers who passed on offers to invest with Yates are counting their blessings.

Joe Franco, president of Heritage Development and Construction Inc., of Kankakee, said Yates presented himself as a person who specialized in turning around failed businesses. But he believed Yates' many companies showed he lacked focus, and therefore steered clear of working with him.

"It was too much too fast," said Franco.

"The guy had the talent to be successful, but he exceeded his talent," Franco said. "None of us has that kind of talent."

As Country Bank in Aledo, across the state, was loaning Yates millions of dollars, Municipal Trust & Savings Bank in Bourbonnais, in his home area, wouldn't lend him a dime.

Merlin Karlock, the Bourbonnais bank's chairman and retired president, said the institution was skeptical of Yates' ongoing string of acquisitions.

"Purchasing one failed business and trying to put it together to make it work is hard enough," Karlock said. "Doing this repeatedly is nearly impossible."

No one can tell what will happen after the financial dust settles and the criminal charges are resolved; and what companies Yates and his son, Terrence, who was chief financial officer of the operations, will end up keeping. He has already lost three of the investments and is poised to lose three more — even if he maintains several fast food restaurants and the manufacturing plant in Casey.

Camelot, the space for autistic children, will remain open, regardless of the outcome, attorneys on both sides of a bankruptcy case involving the building have agreed.

Children are playing soccer and basketball at the Hidden Cove Sportsplex, which also remains open.

The Fyre Lake Golf Course and its related housing development may yet prove successful. An Arkansas bank has purchased notes on the course from the FDIC and plans to clear title and open it, perhaps next year.

Gregory Yates and Country Bank of Aledo

The former Country Bank of Aledo lent companies owned by Greg Yates about $29.9 million between 2008 and 2011. The bank eventually failed.

$5.9 million — Lighting plant in Casey, Ill.

$4.5 million — Fyre Lake National Golf Course development, Sherrard, Ill.

$3.7 million — Hidden Cove Sportsplex.

$1.8 million  — Villas at Heritage Woods.

$2.2 million  — GB Invest LLC and Stingray Energy Systems LLC in Feb. 2009.

These mortgages are in bankruptcy court

$6.8 million — Camelot Therapeutic Day School, Bourbonnais.

$4.5 million — Renaissance Center, Bradley.

$365,000 — Rental property in Bourbonnais.

$162,027 — Rental property in Kankakee.

Source: court records.