For years, Marsch looked like a huge winner. Court records show he received $19 million in fees from the Bridges from 1999 through 2008, plus $41 million for expenses. Counting unrepaid loans and additional perks, Lennar calculated Marsch's total benefit at $71 million.
But as the years passed, the Bridges did not earn back Lennar's investments. With little hope of back-end profit, Marsch's relationship with the home builder soured. Lennar blamed the red ink on housing-market factors beyond its control.
In December 2006, Marsch's Briarwood Capital sued in San Diego County Superior Court on behalf of itself and of two partnerships it had formed with Lennar: HCC Investors and Lennar Bridges. The six defendants, all Lennar-related, included the parent company; Lennar San Jose Holdings Inc., a California subsidiary; and Lennar Homes of California.
Causes of action included accounting fraud, breach of contract and unjust enrichment, with Marsch alleging that Lennar had cheated him with bookkeeping tricks and mismanagement. In a separate lawsuit, he accused Lennar of squeezing him out of participation in the Lakes, a residential project adjacent to the Bridges.
The defendants countersued, denying wrongdoing and claiming that Marsch owed their partnerships money. Things became so heated by 2008 that Lennar stopped paying Marsch fees from the Bridges, contending he had violated his obligations to their joint venture.
With settlement talks going nowhere and each side accusing the other of bullying through litigation, Marsch stepped up the pressure in a July 11, 2008, letter to Lennar's outside directors.
He compared his experience to Hollywood accounting, in which an array of fees and charges, often with no relation to real costs, can make profit ephemeral. The blockbuster "Titanic," for example, grossed more than $1.84 billion without initially generating any back-end bonus for writer-director James Cameron.
"Does it really take me dragging Lennar through trial … to end up as James Cameron did collecting what is owed to me and showing Lennar's accounting to be the fraud that it is?" Marsch wrote.
Rather than inducing the home builder to settle, the letter provoked Lennar to accuse Marsch of extortion. It filed a suit in Florida state court.
"He picked the wrong guys to try to extort," Lennar attorney Daniel Petrocelli said.
As Marsch dug in to defend himself in that suit, he experienced another setback in November 2008, when San Diego County Superior Court Judge William R. Nevitt Jr. tossed out the Lakes project lawsuit. Marsch's pretrial testimony, Nevitt wrote, was inconsistent and "inherently incredible."
A few weeks later Marsch hired Minkow. As a teenager in Reseda in the 1980s, Minkow had founded ZZZZ Best, a carpet-cleaning firm that turned out to have done little actual work, leaving investors with losses of at least $26 million. After serving seven years in federal prison, Minkow had become pastor of San Diego's Community Bible Church and operated a fraud investigation business on the side.
In January 2009, Minkow unleashed broadsides against Lennar over the Internet and in reports delivered to federal agents, calling Lennar "the bully of the prison yard" and "a blatant financial crime in progress."
Lennar's joint ventures, Minkow said, appeared to be "part of a Ponzi scheme." He said Marsch's $37-million judgment against Williams, which had been contributed into the Bridges partnership, had been improperly diverted to prop up other Lennar deals such as Landsource Communities Development, a failed joint venture that cost the California Public Employees' Retirement System nearly $1 billion.
Lennar shares fell 20%, and the company promptly amended its lawsuit to accuse Minkow as well as Marsch of libel and extortion. Through attorney Petrocelli, it urged federal prosecutors to investigate.
That ultimately led to Minkow's March 31 guilty plea to conspiring to manipulate Lennar stock. In the deal, he agreed to cooperate with the government's investigation. He faces a penalty of up to five years in prison at sentencing, scheduled for July 7 in U.S. District Court in Miami.
Settling the civil extortion and libel suit this month, Minkow agreed that he owes Lennar $583.5 million in damages.
Petrocelli said Minkow, through his attorney, had handed over substantial evidence in the case to both Lennar and the government.
Marsch, meanwhile, was ordered last summer to pay Lennar $17.5 million in damages, including millions of dollars that Lennar had given him to pay taxes and other expenses but that, Lennar argued, Marsch kept for himself. The judge also ordered Marsch to pay Lennar $36.4 million in legal costs for their San Diego suits over the Bridges.
Marsch is appealing those judgments, contending he should have had a jury trial. He declined repeated requests for comment, made by phone, email and in person at his beachfront La Jolla home.
In a written statement in March he said he had hired Minkow — but only to find Lennar insiders who would reveal secrets, not to commit a crime. "Mr. Minkow is on his own down there in Florida," Marsch attorney Richard Van Dyke said.
Marsch and Briarwood are in bankruptcy. A bankruptcy judge handed control of the cases to trustees last summer, writing: "This court has lost confidence in Mr. Marsch's capacity for candor and honesty."
Homes that Marsch or his companies owned in Beaver Creek, Colo.; Del Mar; and La Jolla and at the Bridges have been seized by creditors, as have two prize lots he had owned overlooking the Bridges clubhouse.
When his primary residence in La Jolla entered foreclosure in November, Marsch owed $13.6 million on the home, according to a court filing by a Deutsche Bank subsidiary that bought the mortgages.
Property records show the bank bought back the home for $5 million at an auction June 16.