E-FILED 10/18/2023 11:56 AM Clerk of Court Superior Court of CA, County of Santa Clara 23CV424498 Reviewed By: M. Dominguez 23CV424498 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Charles J. Smith, Esq. (SBN # 72700) 777 Marshall Street Redwood City, CA 94063 (650) 5682820 (Phone) (650) 367-1700 (Fax) Attorneys for defendants Terry Houghton & Valerie Houghton SUPERIOR COURT OF THE STATE OF CALIFORNIA IN AND FOR THE COUNTY OF SANTA CLARA CASE NO.: TERRY HOUGHTON AND VALERIE HOUGHTON'S COMPLAINT FOR PROFESSIONAL NEGLIGENCE Date: Time: Dept: 1. PLAINTIFF, Valerie Houghton is an individual. 2. PLAINTIFF Terry Houghton is an individual. 3. Defendant Michael S. Hawes is a CPA conducting business in Roseville, CA. During the relevant time period, he did business as Hawes Mason and Associates and Michael S. Hawes and Associates. He, and his dba's were the accountants for Metaview LLC. 4. PLAINTIFF are ignorant of the true names and capacities of defendants sued herein as ROES 1-20, inclusive, and therefore sues these defendants by such fictitious names. PLAINTIFFS will amend this Complaint to allege their true names and capacities when ascertained. PLAINTIFFS is informed and believes and thereon alleges that, if PLAINTIFFS is 1 2 4 6 7 VALERIE AND TERRY HOUGHTON, 9 PLAINTIFFSS V MICHAEL S. HAWES dba HAWES MASON AND ASSOCIATES, MICHAEL S. HAWES dba MICHAEL S. HAWES AND ASSOCIATES, ROES 1-20 Defendants. 1 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 liable to the plaintiffs as alleged in the complaint in this action, each of the fictitiously named defendants is jointly or jointly and severally liable with PLAINTIFFS to the plaintiffs for plaintiff's damages as set forth therein. GENERAL ALLEGATIONS 5. Metaview Wholesale Investments LP was a limited partnership created to invest in real properties with the goal of improving and rehabilitating distressed properties and selling them for a profit. 6. Between 12/31/10 and 12/23/14, fourteen (14) properties were sold and averaged $23 0,286.00 in net profits, per property. The investors were all sophisticated and wealthy. 7. In the post 2008 economic crash, many homes went into foreclosure. PLAINTIFFS Terry Houghton had the idea of either investing in foreclosed homes or bank owned homes, using a contractor to make necessary repairs, and selling homes for a profit. The goal of all the investors was to allow their investments to grow as profits were earned. They did not want regular distributions. PLATNTIFFSS Terry and Valerie Houghton invested more than $5 00,000 of their money in the limited partnership. 8. PLAINTIFFS Terry Houghton was the managing partner of Metaview Wholesale Investments, LLC which operated the investment business for Metaview Wholesale Investments LLP. The Metaview Wholesale Investments LP agreement is attached hereto as EX. A. The Metaview Wholesale Investments LLC agreement is attached hereto as Exhibit B. 9. PLAINTIFFS Valerie Houghton was a member of Metaview Wholesale Investments LLC. 10. PLAINTIFFS Terry Houghton was entitled to a $7000 per month management fee. He was entitled to take advances against future profits on properties at the time of their 1 2 3 4 5 6 I 7 9 2 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 purchase. He was also entitled to take his share of the profits upon the completion and sale of each property. 11. In late June 2013, Mr. Houghton was advised by the construction specialist bookkeeper he hired in September 2012, that the contractor he'd hired for Metaview LP, Sully McGrath, had grossly exceeded his bids and violated his agreement to charge actual costs for construction on the projects. McGrath billed and received more than $2 million more than the cost of construction. Upon this discovery of theft, Mr. Houghton notified the limited partners of the theft by McGrath at a Shareholder's Meeting on 71713. At the shareholder's meeting, he made full disclosure of the facts to his partners and requested an additional $500,000 to complete the last 3 projects, in which all of the plans had already been submitted and two of the three had already been approved by the building departments and were under construction. The third property was in the final phase of approval and were approved and construction began prior to the court's removal of Mr. Houghton on 6/ 13/ l4. Mr. Houghton offered to manage the completion and sale of these projects and take no profit share if he was allowed to stay on; subject to the outcome of a forensic accounting. Ultimately, Clyde Berg forced Mr. Houghton out through a campaign of denigration and generating a false narrative which the forensic accounting would have revealed. Thus, the refusal by Berg to allow a forensic accounting was particularly necessary to assure Terry Houghton's offer would be rejected by the other limited partners. 12. The LP partners, misled by Berg ousted PLAINTIFFS Terry Houghton. Clyde Berg provided documents to the Santa Clara District Attorney, that led the DA to seek criminal charges against PLAINTIFFSS Terry and Valerie Houghton. Among the documents were tax filings prepared by, or under the direction of, CPA Michael Hawes that incorrectly set forth financial performance figures that, on their face, appeared to establish that PLAINTIFFS Terry Houghton had taken excess distributions from the Metaview entities. These grossly incorrect documents became both the centerpiece of this civil lawsuit against Houghton but also, a key 3 l 2 4 A 6 7 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 document that persuaded the Santa Clara District Attorney to file felony criminal charges against both Houghtons. Ultimately, as set forth herein, a proper accounting demonstrated that Houghton was entitled to all his distributions and the District Attorney dismissed all charges. 13. At the time of ouster of PLAINTIFF Terry Houghton as General Partner of Metaview LLC as the Managing General Partner ("MGP") of Metaview LLC on 6-13-14, Berg installed T&T Equities, Inc. as the MGP of Metaview. 14. T and T Equities was controlled by Berg and Robert Comes. T&T Equities, Inc. took over the managing general partner role, with Robert Comes in control. All of the remaining three (3) projects were completed by the end of 2014 and realized a profit of $2.2 million upon sales revenue of $8,315,000 a fact either never disclosed to the DA or ignored by the DA before they filed charges on 3-8-16, and the Houghtons were arrested by SWAT Teams on 310-16. 15. After the partnership meeting in July 2013, Houghton was removed by the partnership on 6/ 13/ 14. On April 15, 2014, this lawsuit was filed against Mr. Houghton and, on that same day, a report was made to the Santa Clara District Attorney seeking criminal prosecution of Mr. Houghton. l6. The investment was completely solvent at the time Clyde Berg's hand-picked MGP, Robert Comes was appointed to run MetaView L.P. Three (3) properties which Houghton had purchased and had forecasted to sell for between $7,800,000.00 and $8,200,000.00 in revenue would have generated $2,500,000.00 in cash to the partnership at the high forecast of $8,200,000.00. Actual revenue for the 3 properties generated $8,315,000.00: thereby exceeding Houghton's forecast by $115,000.00. The $2,665,000.00 was "expensed" (without corroborating documentation) and/or diverted to a select few of Metaview investors at Clyde Berg's direction, while other entitled investors, including the Houghton's, received nothing. 1 2 3 4 5 6 7 9 4 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 17. On 10/27/20, the District Attorney filed a motion to dismiss all charges against cross- complainants Terry and Valerie Houghton "in the interest of justice". On 10/29/20 Honorable Judge Saban granted the Motion to Dismiss. 18. Tim Wilson is an employee of Hawes, Mason and Associates, Inc. Tim Wilson is not a licensed CPA. Tim Wilson was in charge of the Metaview LP's account. He was put in charge by the leadership at Hawes, Mason and Associates, Inc. 19. In 2008, during Terry Houghton's initial face-to-face meeting to explain his business model for Metaview Wholesale Investments, LP ("Metaview") with Michael Hawes, CPA, he told Terry Houghton, "Eventually, when the investment became substantial, Metaview would need to start producing monthly statements." 20. Terry Houghton, while he was keeping the books (using Quickbooks) between 2008- 2011, provided the Partnership with spreadsheets, stating project profits, annualized rate of return on investment, and Partnership profit splits between the Managing General Partner and the Limited Partners. 21. In or around the beginning of 201 l, Tim Wilson came to Terry Houghton and recommended he take over the Metaview LP bookkeeping. 22. At this point in 2011, there were a significant number of projects and the investment had grown by approximately 700%. 23. Tim Wilson of Hawes, Mason and Associates Inc. repeatedly failed to work on Metaview LP until the tax deadline of September 15th was imminent. 24. Another grossly negligent error made by Tim Wilson when he made a significant error about the name of the Managing General Partner ("MGP") from "Metaview Wholesale Investments LLC" to "Counselors & Consultants, Inc. Profit Sharing Plan (PSP)." 25. In 2008, the K-l correctly listed the Managing General Partner as "Metaview Wholesale Investments LLC." In 2009, the 2009 K-l incorrectly was changed and facially falsely listed the MGP as "Counselors & Consultants, Inc. Profit Sharing Plan (PSP)." The only 5 1 2 4 5 6 D 7 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 document Terry Houghton ever received was single page "Authorization Form" to file the tax return electronically. Terry Houghton had no chance to review it before it was filed. He trusted Michael Hawes to supervise Tim Wilson and to advise him if there were any issues which arose. 26. We did not know anything about the 2010 K-l document or its implications until after our 2016 arrest, while our civil case was stayed. Over the next 4.5 years, as we struggled to get the DA's Discovery in our criminal case, it became clear that that 2010 K-l document was their foundational document. 27. Ultimately, that 2010 Kl falsely showed a "negative balance for the PSP, and as a result, it incorrectly indicated the "Houghton Capital Account" was negative, so therefore, the allegation became "any payments Terry Houghton received after 1231-10 was theft." As a result, the Houghtons were arrested for theft on 3-10-16. The charges were dismissed on 1029- 20. 28. On 10-2920, Judge Saban granted the DA's Motion to drop all 4 felony counts against Terry and Valerie Houghton. The DA's Office made the decision to file that Motion in large part because a proper accounting was performed by Katherine Alves, CPA, in accordance with the Metaview LP Agreement. 29. Katherine Alves, CPA made a slideshow for the DA's Office's forensic accountant and provided him with a binder of support documents and the in-depth analysis which showed there was no theft by Terry nor Valerie Houghton. She said she was shocked by the failure to meet the work performed by Hawes Mason and Associates, Inc. 30. Ultimately it was only upon our arrests in 2016 and over the course of examining our bits and pieces of Discovery over the next 4.5 years (when the civil case had already been stayed) that we were able to get the information about the significance of that particular facially false document (the "2010 K1") and see how those grossly negligent errors had been used as the "foundational document" to achieve our arrests. 1 2 3 4 5 6 7 9 6 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 31. That's when the Houghtons discovered the full import of these egregious errors made by Hawes, Mason and Associates, Inc. 32. For these reasons, we hold Hawes, Mason and Associates Inc. accountable for the improper accounting, failure to set up monthly statements, as Terry Houghton was told would be done, negligently completing the 2010 Kl with so many significant grossly negligent errors, and was significantly responsible for "setting the stage" for the loss of the Partnership funds through theft by Sully and Adrienne McGrath. FIRST CAUSE OF ACTION 33. PLAINTIFFSs refer to and reallege all of the paragraphs of the General Allegations, and by this reference incorporates them herein as though fully set forth at length. 34. PLAINTIFFSS allege that Michael Hawes was the legal and proximate cause of damages to PLAINTIFFSs by the following acts or omissions that negligently caused damage to PLAINTIFFSs: failure to perform proper accounting for MetaView Wholesale Investments LP and LLC resulting in PLAINTIFFSS removal from his role as managing general partner and causing criminal charges to be filed against them. WHEREFORE, Cross-complaints pray for judgment as follows: 1. For compensatory damages to Terry Houghton and Valerie Houghton in an amount according to proof. 2. For interest on said damages at the legal rate, from and after an appropriate date according to proof. 3. For an accounting of Meta View LLC, and Metaview Wholesale Investments LLP. Dated: October 18, 2023 Chariés J. Smith, Attorney for PLAINTIFFSs Terry Houghton & Valerie Hough 7 By: 1 2 3 4 5 6 7 8 9 5,933.64?