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West Des Moines developer James Myers should stand trial for violating Minnesota securities laws, according to a motion filed in his bankruptcy case in Des Moines.

Myers filed for bankruptcy Oct. 13, citing nearly $184 million in business debts and a little more than $1 million in assets. Many of the debts were related to failed development projects, including a plan to renovate a building in downtown Minneapolis and add a parking garage with more condominium units above it.

A bankruptcy filing creates an automatic stay that prohibits creditors from collecting debts. An exception can be an ongoing lawsuit in which the plaintiff stands a good chance of prevailing.

Myers, his brother, Robert, the family’s trust and a longtime family business partner already have been ordered to pay more than $8 million in a judgment won by Bank of the West in connection with the Minneapolis project. About $50,000 of that court award has been paid, according to Polk County court records. The case was referred to the Polk County clerk of court’s office for collection.

However, efforts to collect additional money from Myers were blocked by his filing to liquidate assets under Chapter 7 of the U.S. Bankruptcy Code.

The project, called Sexton Lofts, also fell under a federal investigation of allegations that buyers were purchasing units in the building and reselling them at inflated prices that were based on phony appraisals. One buyer pleaded guilty to federal mail fraud and conspiracy charges for his role in the scheme.

In addition, the principal Minnesota partner in Sexton Lofts played a prominent role in the federal investigation, according to documents filed in U.S. District Court in Minneapolis. That individual has not been charged in the investigation.

In the recent development in James Myers’ bankruptcy case, a lawyer representing 38 investors in the combined parking garage and condominium phase of the Sexton Lofts project said the developer should not be allowed to hide behind bankruptcy laws to avoid prosecution in Minnesota.

“The Debtor should not be able to seek solitude in bankruptcy court on the eve of trial when he was actively engaged in the lawsuit since its inception and was represented by counsel the entire time,” attorney William Topka argued in a motion to lift the stay, thereby allowing the case to proceed to trial on Nov. 30.

The investors filed a lawsuit in 2008 claiming that Myers and other partners violated the Minnesota Uniform Securities Act when they reneged on a promise that a minimum $9,000 investment in the project would pay off the initial purchase price plus 100 percent profit in 18 to 24 months.

As an alternative, investors could use the agreements as a down payment on a condominium unit or units, with Sexton Lofts guaranteeing one year of rent and that it would pay the rent, even if the unit remained vacant, according to the Minnesota lawsuit.

The lawsuit points out that the parking garage and additional condominium units were not constructed.

In 2007, after learning that the project was in trouble, the investors attempted to assign their purchases back to Sexton Lofts, expecting $18,000 for each $9,000 unit. They did not receive their money. The lawsuit says Myers and his partners engaged in fraud in enticing investors and violated state law by failing to register the investments as securities.

Myers delegated his duties as manager of Sexton Lofts to another individual, according to the lawsuit. Myers, through his Heather Enterprises II LP, had a 45 percent interest in both phases of the Sexton Lofts project.

Bank of the West has foreclosed on the project after issuing a $26 million development loan. A Minnesota state court judge ordered Myers to pay $1.9 million of the defaulted loan last August. The bank had attempted to collect the judgment up to the date of his bankruptcy filing.

Myers’ bankruptcy attorney, Steve Wandro, said the fraud case is without merit and that he will file a motion stating as much prior to the hearing on the motion on Nov. 16 in Des Moines.

Wandro also said Myers and other local participants in Sexton Lofts were “passive investors” so far as the pre-selling of the project was concerned.

“They weren’t on the selling side of this thing,” he said.

If the stay is lifted and the investors prevail at trial, Myers would be required to pay a portion of the claim equal to his 45 percent stake in the project.

Myers was a principal of the various real estate and development companies that operated under the Regency name.

Regency Commercial Services of Minnesota, another Myers company, was the developer of the Sexton Lofts project.