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Chicago trader awarded $8 million in real estate debacle

A judge found rampant self-dealing by an investment manager.

Trader Ray Cahnman in 2003.
Trader Ray Cahnman in 2003.
Sun-Times files

A Cook County judge has awarded more than $8 million in damages to Ray Cahnman, a prominent Chicago trader, for losses he sustained from mismanagement of his real estate ventures, mostly by a former friend.

Associate Judge Sanjay Tailor, ruling on a complex case with nearly a six-year history in the court system, said Cahnman associate David Zazove breached his fiduciary duty and was guilty of “egregious self-dealing” in managing the investments. The suit established that, unbeknownst to Cahnman, Zazove paid himself management fees and commissions he wasn’t entitled to under their partnership agreement.

With a friendship that dated from at least 1979 in the pits of the Chicago Board of Trade, Cahnman and Zazove agreed to partner in real estate investments, with Cahnman putting up the cash and Zazove investing his time as a manager. They agreed to share profits but, as their investments never made money, Zazove found other ways to extract income from the deals, sometimes routing payments to separate companies he created, the evidence showed.

“I had taught him how to trade. I trusted him, and I gave him control of the entities,” Cahnman said. “I didn’t know anything about real estate. I was too busy trading.”

He said the case shows that people need to closely follow any business agreements and not leave anything to faith. “I refused to believe anything was wrong,” Cahnman said. He said Zazove “never produced anything that made money. The guy has a way about him where people trust him — people like me.”

David Zazove
Flickr

Tailor held Zazove liable for $7.7 million. In the ruling Sept. 16, Tailor also said another defendant, Stephen Barron of Barron Development, owes Cahnman more than $476,000.

Zazove declined to comment. Cahnman’s attorney, Karen Levine, said Barron already has paid the settlement.

Cahnman said he’s unsure what he can collect from Zazove, as the evidence showed he had little income other than what he misappropriated from the real estate. Their ventures included the Timber Court condo complex in Arlington Heights, a condo project in Milwaukee and a four-story commercial building at 3045 N. Lincoln Ave.

Barron’s liability stemmed from his partial interest in Timber Court and a deal he struck with Zazove to manage the property. Tailor held that the management fee, drawn from Cahnman’s funds, was excessive.

“I have satisfied the judgment, and now we are all moving forward amicably,” Barron said. The three men remain partners in a building at 1016 W. Jackson and in a business there that provides shared office space.

“I’m not happy about this. … I feel sorry for Zazove in a certain way,” Cahnman said. “With this judgment hanging over him, he can’t access the banking system. He’s suffering and he’s got more to suffer. This is nothing to celebrate.”

Cahnman, 74, is a former director of the Chicago Board of Trade and chairman of TransMarket Group, a firm that trades futures contracts for its own accounts, not those of outside customers.

In his 134-page opinion, Tailor cited Cahnman’s neglect in overseeing Zazove as reason for refusing to approve even greater damages. Cahnman said he couldn’t focus on real estate because he had more money at stake in futures trading and that in 2010, with world markets recovering from a recession, he had to work hard to avert the collapse of TransMarket.