Titan on a Hot Seat

Shopping-mall magnate Dick Jacobs stood in the foyer of his brother Dave's new home and wept.

It was 1979, and the house was 8,000 square feet of pure elegance, sitting on a wooded lot in Bay village overlooking Lake Erie. Bonne Bell Eckert, then president of the Bonne Bell cosmetics company, was amazed. "This is such a wonderful home!" she told Dick as she entered the house.

"He deserves every bit of it," Dick replied, tears falling down his cheeks.

The brothers grew up poor in Akron. Dick still tells how they used to pour hot water into half-empty peanut butter jars and call it soup.

Together they went on to build the nation's first shopping-mall empire: 38 malls, valued at over a billion dollars. They remained best friends until Dave's death in 1992. "Richard was just crazy about his brother," Eckert says. "They loved each other very much."

Before he died, Dave created a number of family trusts to avoid estate taxes and pass on his enormous wealth to his three kids, David Jr., John, and Marie. Naturally, he named his brother trustee. Dick was responsible for managing hundreds of millions of dollars for the future benefit of Dave's children. Dick also was supposed to give his niece and nephews regular payments from the trusts.

But a lawsuit filed in federal court accuses Dick Jacobs of betraying his beloved brother. The suit, filed by David Jr., alleges that Dick has taken or misspent as much as $448 million from the trusts, much of it to prop up failed real-estate investments in downtown Cleveland. It accuses him of failing to make regular payments to his family members from the trusts and refusing to provide an accounting of his actions. Finally, the suit alleges that Dick Jacobs used his position as one of Cleveland's most prominent men to maneuver his brother's heirs out of the family business.

In the process, the lawsuit flashes a rare light into the inner workings of one of Cleveland's most powerful and secretive families.

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The year was 1988, and big building plans were on the lips of Cleveland business leaders. Ameritrust, one of the city's blue-blood corporate titans, hoped to move from its run-down headquarters on East Ninth Street to a new 60-story tower at the psychological heart of the city, Public Square.

Jacobs bought the block immediately west of the square in 1988 for $20.3 million. But in 1990, the downtown office market slumped, so the project stalled. In 1992, KeyBank bought Ameritrust. The tower project died. (Jacobs did not return repeated phone calls. His lawyer, Dan Warren, declined comment.)

Jacobs received the city's permission to turn one of Cleveland's most valuable properties into a surface parking lot, which recently was revalued at $6.1 million. He also wound up owning the old Ameritrust headquarters, a warren of dilapidated vacant buildings at the corner of Euclid and East Ninth. Jacobs paid $66 million for the properties. Today they're worth just $15.6 million, according to the county auditor's office.

A few years after the Ameritrust deal fell apart, Jacobs arranged for one of his companies, the Jacobs Group Investment Company, to lend $200 million to three other businesses he also controls. The three companies own the Ameritrust complex and the parking lot on Public Square.

He personally guaranteed $150 million of the debt. And since his niece, nephews, and their family trusts are shareholders in the Jacobs Group Investment Company, they were on the hook for the other $50 million.

The loan came due in September 2001. Jacobs has since extended it several times, and according to the lawsuit, the loan is still not repaid. Since he's both lender and borrower in the deal, Jacobs has the power to extend the loan indefinitely. That makes sense for him, since calling in the loan would force him to pay $150 million from his own pocket.

It also makes sense because, whatever Jacobs did with the $200 million, he probably didn't invest it in the Ameritrust complex or the parking lot.

The former bank's 28-story tower on East Ninth remains dark and largely vacant. The complex is now one of four potential sites being considered by Cuyahoga commissioners as the county's new headquarters. When he submitted his proposal for the development last year, Jacobs conceded that he still hadn't removed or covered the building's asbestos insulation.

All this leaves Jacobs' niece and nephews holding a $50 million debt they can't collect -- for a venture they know nothing about. "It's hard to know what these loans were used for," says David Jr.'s spokesman, Tom Andrzejewski. "That's why one of the things being sought by the lawsuit is a full accounting."

Jacobs pulled a similar move with another loan, according to the suit. The Jacobs Group Investment Company lent $218 million to Jacobs Realty Investors, another company under Dick's control. Much of the money came from his niece and nephews. As in the Ameritrust deal, -the suit alleges, Jacobs is using his position as borrower and lender to make sure the loan is never repaid.