OMAHA - The way attorney Clarence Mock sees it, there's a distinct line separating a civil dispute from fraud.

The way prosecutors see it, three developers crossed that line with their promises and actions as they recruited investors for a project to renovate the Ambassador apartments near 49th and Dodge Streets.

Omaha developers Joseph Frost and Jason Plog and David Mackie of Lexington each are charged with 13 felony counts for the failed investment project: eight counts of securities fraud, four counts of failing to register securities and one count of criminal conspiracy.

Their attorneys say the case is nothing more than a civil dispute over a project that had more pitfalls than originally anticipated. Eight investors plunged at least $400,000 into the plan to renovate the complex into condominiums.

A lawsuit is crawling its way through Douglas County District Court over the failed project.

Donald Schense, who represents Plog and has handled the civil lawsuits over the projects, said the case is full of factual questions.

Plog "categorically denies any wrongdoing," Schense said. "There was no intent to defraud. This is, in essence, complex civil litigation, and that's the forum where it should stay."

"Not every civil dispute where someone claims that there were misrepresentations or breaches of agreements is a crime," said Mock, who represents Mackie. "They get in, things go south and now (investors) want to complain that they were defrauded. It wasn't like anything was hidden from them."

Authorities disagree.

Within three months of investors' initial investments, Frost, Plog and Mackie improperly paid themselves $221,000, according to a court affidavit prepared by the Nebraska Department of Banking and Finance and the Douglas County Attorney's Office.

"Such payments were made contrary to the statements made to investors that the (developers) would not receive any money until the investors' principal was repaid," the affidavit said.

Investigators also alleged that the three told investors the renovations to the apartment complex would be mostly cosmetic. A few weeks after securing the investments, Omaha city inspectors declared the property unsafe and unfit for occupancy and ordered tenants out.

"The order to vacate the building reduced the revenue from the project and should have been disclosed to subsequent investors," the affidavit said.

Mock pointed out that his client, Mackie, was involved only in financing for the project and made no representations to potential investors. He said the developers gave investors written disclosures that included "soft costs'' of $415,000 in developers' fees for the project.

The developers believed that an attorney was handling the issue of whether the securities needed to be registered, Mock said.

Further, Mock and Schense said, the developers had no idea that the apartments would require such substantial repairs.

As the redevelopment progressed, the developers ran into unforeseen problems, the attorneys said. One of those costly issues: the city ordered the redevelopers to replace the forced-air furnace and bring the plumbing up to code.

"It didn't go awry because of criminal actions," Schense said. "It simply went awry. And that's why it's being litigated (in civil court)."

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