The indictment was filed Tuesday in U.S. District Court in Chattanooga, and includes one count of mail fraud, 12 counts of wire fraud and 15 counts of money laundering.
The indictment alleged that Ross — doing business as multiple entities, including Rarity Club, Rarity Mountain and Rarity Communities — devised a scheme "to defraud those who bought real estate from his business."
The charges are a serious blow for a developer who at one time presided over an empire of upscale residential projects across East Tennessee, but more recently has been besieged by creditors and hard-hit by litigation.
In recent years, multiple properties bearing the Rarity name have gone into foreclosure, including Rarity Mountain, which is located in Campbell County, and Rarity Club, in Marion County.
The indictment issued this week alleged Ross collected money from property buyers who were told it would be used to construct a clubhouse, golf course and other amenities to be used by property owners at Rarity Club. It further alleged that the fees were generally $25,000, $50,000 or $75,000 per lot, and that buyers were told — by Ross in a letter, or by salespeople at his direction — that the money would be deposited into a segregated account.
Instead, the suit alleged, Ross removed those funds from the initial account "for use in other real estate ventures," contrary to what buyers were promised.
The indictment further alleged that if convicted, Ross must forfeit a money judgment of $1.85 million.
Chattanooga attorney Lee Davis is representing Ross and said the developer "maintains his innocence and that these are business transactions and … not criminal conduct. It is more a result of the downturn in the real estate economy in East Tennessee in 2008 (and) 2009."
The issue of amenities at Rarity Club — which is located on Nickajack Lake, near Chattanooga — has come up previously in federal court. At a bankruptcy hearing in 2010, one of the issues discussed was the fact that Nickajack Shores Holdings LLC — the development firm behind Rarity Club — had loaned more than $6 million to a firm behind Rarity Mountain. That loan was later converted to an equity interest.
At that hearing, Ross said nearly $9 million had been spent on the golf course at Rarity Mountain, which he estimated at the time was 90 percent complete. Another Rarity executive estimated at that hearing that approximately $4 million had been spent on the golf course at Rarity Club, which was not complete. At that time, the marina and clubhouse at Rarity Club also had not been completed.
At that hearing in 2010, bankruptcy trustee Patricia Foster asked why the Rarity Mountain golf course was built before the Rarity Club course, and Ross said he didn't know the answer, before adding that both courses were being developed.
Asked later in that hearing if an accountant had provided any assurance that Nickajack Shores Holdings could invest money in Rarity Mountain and still make good on the advertised amenities at Rarity Club, Ross said no.
In 2008, 9th Judicial District Attorney General Russell Johnson asked the Tennessee Bureau of Investigation to look at whether former Loudon County Property Assessor Doyle Arp improperly reduced tax assessments on Ross-owned properties in that county.
West Tennessee District Attorney Mike Dunavant was later asked to investigate the case, but in 2010 Dunavant said he had decided not to prosecute the subjects of the investigation.