The Good, The Bad and The Ugly on Galt's Gulch Chile

[The following post by The Dollar Vigilante Chief-Editor, Jeff Berwick]

I have waited a long time to write this missive and it is with great regret that circumstances have reached a point that I now can and must.

As many of you are aware, throughout the first six months of 2013 I was trumpeting Galt’s Gulch Chile and truly believed it would be an amazing place (and still do, actually, please read on).

I was excited by what Doug Casey had created in Argentina (La Estancia de Cafayate) and had actually purchased there because I was so thrilled to see liberty minded people gravitating outside of the US to a place like Galt’s Gulch in Ayn Rand’s book, “Atlas Shrugged”.  I first wrote about La Estancia as being “Galt’s Gulch” in 2011.  I went on to talk throughout much of early 2012 about how exciting I found the concept and how I would like to do one myself.

I had met a person named Ken Johnson in the late spring of 2012 at a conference in Palm Springs.  He told me he was a recent libertarian convert and wanted to help me grow my business. We had begun to work together on some things.  He told me he could sell “anything to anyone” and I liked that because we were in need of a sales and marketing department that was at that point non-existent for many businesses that I operate.  It did start off well because when he spoke to people on the phone for a number of new businesses I had started including TDV Passports and TDV Offshore he immediately began to close sales.  But it became apparent that we needed to grow the businesses and a sales team and so I left him in charge of that.  That’s when problems began.  He created drama with all of our pre-existing and new staff even including initiating a physical confrontation with one person who we had hired.  

I always try to make things work out for the best (something I have learned not to do as much in the last few years with certain people for this reason) and tried to find a way to utilize Ken’s sales abilities in a form where he did not have to manage a business or be involved with people.

He had been telling me that his background was in real estate and that he was approached by a man named John Cobin about a property in Chile at Freedomfest in 2012.  Cobin contacted Ken because he knew I was looking to get involved in my own real estate project.

Ken went down to Chile to take a look at it and was very excited about and he said I should get down there as soon as possible to see the property.  I did and I was amazed at the property… and still am to this day.  Anyone who has been there and seen it knows that it is perfectly located in a serene wine growing region and mountain valley about an hour outside of the bustling, modern metropolis of Santiago to the East and less than an hour to the best seaside resort in South America, Vina del Mar, to the West.  And, located in what I had concluded was the most libertarian and growing country in South America.  And the price seemed too good to be true.  Less than $1.5 million for a very large property.

We sat down for dinner in Santiago with John Cobin and his partner who had brought us the property and that’s when things started to get strange.  Cobin and his partner had some bizarre plan to zone a few thousand acres with 3,000 lots including golf courses, hotels and all manner of grandiose things.  They actually had a business plan that went into the billions of dollars in revenue.

My first thought was that it would be terrible to turn this serene, perfect mountain valley into a complete suburban-like area.  And my second thought was, “3,000 lots?  Doug Casey has been operating La Estancia de Cafayate for more than five years and hasn’t even sold 200 lots!”

Everyone at the table told me that it was a “sure thing” which I found preposterous.  But then, Cobin, his partner and Ken started talking about putting a down payment on the property with a “rubber cheque”.  They were essentially saying that we would give the owner a cheque that had no real money backing it and then raise the funds to buy the property.

By that point I had had enough.  ”I don’t do business that way,” I said, and nearly got into a fist fight with Ken Johnson over it.

However he and the others all assured me that this was “totally normal” in the real estate business to do… and over time they, and especially Ken, talked me into doing it.  Ken told me, “this is how the real estate business works.”

Excited by the property and the potential I decided to trust Ken on his knowledge of how to do real estate deals and we then raised the money with four key investors who we still to this day call “the founders”.  All were TDV readers and they were excited about the potential.

I was assured that the property could be rezoned (at least somewhat) and that it had water rights and I returned to North America and Ken and I agreed we would be 50/50 partners on the deal (with a certain percentage for Cobin and his partner and for the founding investors) and I told Ken that I had no time nor qualification to operate or manage a real estate development so he would be the Managing Partner and that the plan was for us to bring in qualified people to help us develop the property as I brought in the marketing interest for lot purchasers.  In other words, his role would be to do the real estate deal and I would bring in the investors and then we would find someone to properly manage the project and we’d both be mostly hands-off on the day-to-day operations.

That, as it turns out, was about the last time I had anything to do with Galt’s Gulch Chile in terms of having any control (as I will explain below).

Very quickly after the purchase of the property I received an email from Ken that there was a lot of errors and the property not only can’t be rezoned for 3,000 lots but only for 12!  And, it had no water rights for much more than 12 livable units!

Ken told me it wouldn’t be a problem and he’d get it fixed.  And, while I had already begun to market the property I was generally okay in knowing that the four founders had bought a large piece of property that, at worst, they could live on and/or resell and no one would get very hurt from this mistake.

A few months passed and there wasn’t too much developing when I got an email from someone (not even Ken) in June of 2013 that he had just committed to purchase a property with secure water rights near the initial property for over $6 million… and it had to be paid in full within three months!

Also, he had hired some sales staff (all TDV readers) and all of them were emailing me telling me that what Ken had just done was crazy and he was trying to get them to sell a property that wasn’t owned by GGC without any real details even about the property, how much water or water rights it had and whether it could be rezoned!  They all said they were going to quit but Ken had begun to move forward and market it.

Being what I thought was a 50/50 partner with Ken on GGC (aside from the percentage ownership of the founding investors) I was shocked that he would do such a thing without even telling me.

I contacted my most trusted financial advisor and asked him to go down to Chile with me to figure out what was going on.  We met with Ken and GGC’s lawyer at the time and asked if I was still a 50/50 partner with Ken on this project and he confirmed that I was.  I then asked him if the founding investors knew about the deal and were comfortable with it and he told me they were.  And then my advisor and I stated that this deal should not move forward, in any respect, until all the water rights were fully tested and that the property could be rezoned.  Ken told us that he had done that for the most part and would complete it all soon but assured us it was fine.

Since I had already brought in thousands of leads to GGC throughout 2012 and the start of 2013 and Ken had begun to market this new property that GGC didn’t even own I was very distressed.  However, at the same time, the amount of interest was staggering.  I knew there would be demand for a project like this but I was amazed how much interest there was.  Ken again told me that this is just how these type of deals are done and that GGC would have no problem pre-selling the lots to pay for the land.  He also told me that he had negotiated a deal in such a way that even if the full payment can’t be made in time that we could extend it.

And so I decided that since I was already roped into this by association I had two choices.  To stop promoting GGC and go public with the reasons why I was uncomfortable or to continue to promote it and hope it works.  I chose the latter and very quickly money began flooding into the project and I began to think that maybe this would all work out and maybe Ken really knew what he was doing.

That was around August of 2013.  From then on things got worse and worse.  

The entire staff of GGC (mostly salespeople) had all threatened to quit (and most did quit except for one) because they were all libertarian free market anarchists and they disagreed with the way Ken was doing business.  He was pre-selling lots that the property was not zoned for.  He was not properly setting up the company nor even making any rational business plan for the company.  He was just taking in money and often not even sending anyone a signed contract in return.

I became very upset by this and many other incorrect business dealings I saw him doing and I told the “founding” investors that this had to change immediately or I would have to withdraw my name and consent from this operation.  A fight, of sorts, went on for quite a period of time and finally I stated that if Ken did not start operating correctly that I was going to go public with what I saw were many issues… which would in effect surely have killed the project.

Ken had been telling the founders that all the problems that they were hearing about (staff quitting, problems with lawyers who wouldn’t work with Ken, constant legal actions, problems with bank accounts that threatened to close GGC’s accounts if the money coming in from offshore was not properly accounted for under ‘money laundering’ laws amongst other things) were all caused by me.  None of them were as I had nothing to do with any of them but at that time the founders sided with Ken and believed him that I was the cause of countless problems.

Ken had convinced them, like he had originally done with me, that he knew what he was doing and so they put their trust with him.  And, at about that time, Ken let me know that he had transferred all the properties from the original company in which I was a 50/50 partner into one in which he was essentially the sole owner (even excluding the founders who invested the original funds)!

Then, in November of 2013 GGC was about to have its first event.  The timeline to pay off the property had passed without full payment, but as Ken said it would, it didn’t appear to be an issue and it had been extended.  I continued to tell them that if Ken continued to have full control of this company it would be a disaster as he simply has no ability to manage staff or operations (as of today nearly 100 people have likely worked for GGC in one form or another and about half have quit and the other half have been fired… I believe there may be 1 or 2 new people working there now whom I am sure will either quit or be fired).

I wasn’t even invited by Ken or GGC to the event but the person Ken hired to manage the event just assumed I was still involved and she invited me… so I decided to go.  I was surprised at the success of the event.  There were a number of new staff members, many of whom seemed very competent, the event was well managed and planned by them and there was quite a large crowd of past buyers, the original founders and many who had come to look at buying.

I spoke with Ken briefly and met with a few of the original founders and they told me they were happy and relieved to see that Ken had done what he said he was going to do and had made it a success.  I continued to question the ways in which he was doing it (many of the lot purchases came in the form of a loan to be repaid over a number of years – a little ponzi-schemish for my liking) but even though I apparently had no ownership or control of the operation I was relieved to see that it wasn’t a total disaster and even had the look of being a success.

Soon after the event, however, things again went off the rails.  Nearly every single person who had been hired and who I deemed to be highly competent to run and manage GGC quit or was fired.  The stories started coming in on how horribly he had treated them and how many were not even paid for their services.

I again went to the founders and expressed my concerns that a change needed to be made with Ken in full control of the operation and running it about as poorly as could be conceived in terms of accounting, management, staffing, continuing to sell lots for zoning that was not approved and so on.

The founders, still quite happy from what they saw at the event were very concerned but told me that Ken had agreed to having a board of directors including them that would control major decisions, doing a full accounting of all income, expenses and liabilities for them and that zoning would be approved “any day now”.

I told them that I had no faith that Ken would do that as he had told me similar things for nearly the entire year prior and never did anything he said he was going to do.

They all asked me to leave the project, have nothing at all to do with it and that once they had it under control they would find a way to compensate me for my involvement.  They told me to just take my losses (my total losses of expenses, loans and money taken by Ken that I had given to him in exchange for a separate deal that he reneged on is approximately $500,000).

Exhausted by the entire year of extreme drama and stress I decided at that point just to take the losses and let them run it and have nothing to do with it… since that was really my only option anyway.  I was also left with a dilemma on what or how I should publicly state this.

At that point, however, there were numerous people who had bought and all were incredibly excited about the project.  The founders and many buyers asked me to just say nothing about what had happened and move on and let them build this project with Ken who had made them all countless promises.

For this reason I have not talked about GGC for nearly the last year.

GGC had its most recent event in March of this year and while many of the purchasers had serious concerns about how things were being managed Ken managed to persuade them that all of the problems would soon be fixed including zoning which would be approved “within 15 days”.

From there it got worse and worse as Ken did nothing he said he would do and finally by April/May of this year the founders had finally realized that Ken was not only lying to them but had not even given them the shares of the company in which they had invested in more than a year and a half earlier and had begun treating them like enemies.

Written in the purchasing contract when buying a lot was that if you came to Chile and did not find a suitable lot to choose you could ask for a refund.

One of the first to do that was Wendy McElroy (who wrote publicly about GGC yesterday).  She had bought a lot because she assumed I was involved in the project and when she found out I wasn’t and saw how it was being run she had no interest in staying there.  She requested her refund and then the allotted time passed and she had not received it.

Then I began to hear of others doing the same thing.  All were very upset.  As well, the founders had had enough of this by then too and so a number of founders, investors and buyers all began to group together to figure out a plan to fix this situation.

I have not been given any information on GGC, at all, from Ken Johnson since last June prior to the purchase of the second land parcel and I was unaware of how many people had bought, who had bought and details of what was going on.  Many have since filled me in on most of the details and I have joined with them to salvage the wreckage Ken Johnson has created.

One buyer in particular has been particularly instrumental in hiring lawyers and spending a lot of his own money in figuring out what Ken Johnson has been doing for the last 1.5 years and I, the founders and many of the buyers have worked with him to give him all the historical knowledge we have.

A legal case will soon be brought forward.  The details of it exactly are unclear to me as I have not been directly involved but there are easily what appear to be countless major criminal or fraudulent acts that have been done by Ken Johnson/GGC that could possibly be brought forward.

When this group formed over the last two months the biggest question was “When and how do we go public about this?” with the major concern being that no new people invest in the project until it can be properly repaired.  We resolved to try to get it fixed as soon as possible with the least amount of media attention as part of fixing this problem will be to not destroy the Galt’s Gulch name when the problem is just the actions of one man, Ken Johnson.

However, it has now been a few months of dealing with lawyers and looking at options and Wendy, as of yesterday, finally could not keep the lid on it any longer and I respect her for being so valiant.

THE GOOD NEWS

Ken Johnson has kept everything so secretive from everyone that we are still unclear of what the current status of everything is.  No one, possibly even including Ken Johnson (he is that inept at operating a business), knows the exact status of the assets and liabilities of the company.  And, on that note, Ken Johnson’s mental stability must be questioned. His actions over the last year and a half have gotten more and more schizophrenic, paranoid and violent.

However, if GGC owns the land  on which it has been selling lots (which it appears to although Ken Johnson may have recently tried to swap out the land to another company – but even if that is the case that would clearly be illegal and that transaction should be able to be nullified) and if the water rights are confirmed (one lawyer for GGC a year ago told me that the property does have sufficient water rights for the community) then it is quite possible that all the founders, investors and buyers could gain control of the enterprise and it still could be a wonderful community.

And, in fact, almost every founder, investor and buyer is committed to doing whatever it takes to fix a ton of mismanagement mistakes (which can only be one of two things: complete incompetence or outright fraud).  And the group who has founded, invested in and/or bought at GGC is one of the most amazing groups of people I’ve ever had the pleasure of knowing and they all want to fix this because they believe in the concept and idea and truly want to live amongst each other as neighbors.

So, in this sense, the fight to create this community has just begun.  I have told everyone involved that even though I apparently own nothing of the project I will do everything within my power to fix these problems.  This has been a massive weight on my shoulders since the very beginning and not having the ability to have any sort of control of things nor even the ability to tell this story has been one of the most stressful times of my life.

In essence, all that it would take to repair most of the problems is for Ken Johnson to allow the investors and buyers to gain access and control to their investment (as any normal business would) and allow them to restructure and professionally manage the property which they are fully willing to do.  There are literally dozens of amazing, highly qualified individuals who believe in this project and want to do anything they can to make it a success. Unfortunately, whether it is due to paranoia, mental illness or trying to cover up significant fraudulent actions Johnson has shown no willingness to do so and continues to operate in complete secrecy and to treat investors and buyers as enemies.  This will come to a resolution one way or another.  This is not the last you will hear about Galt’s Gulch Chile.

A Facebook page has been started where people can begin to trade information here.  If you have purchased at GGC and have not been in contact with the group trying to fix these problems you can contact me at [email protected] and I will direct you to the proper channels to receive information.

Questions or comments? Join us at The Dollar Vigilante.