Business writers Patrick Danner and Jason Buch wrote a story today that revealed new details about an investigation of brothers Ronnie and Gary Cain, who had played a key role in helping Rackspace Hosting Inc. set up its headquarters at the old Windsor Park Mall in Windcrest, outside San Antonio:

The former city manager of Windcrest and his brother, a San Antonio developer, are facing allegations they conspired to defraud millions from the city and the tech company Rackspace Hosting Inc.

On Tuesday, Texas Rangers and the Bexar County district attorney’s office executed a search warrant at the offices of developer Gary Cain, looking for evidence that he and his brother, Ronnie Cain, who recently retired as Windcrest’s city manager, engaged in various financial crimes.

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A search warrant affidavit — a publicly available court document investigators must present to a judge to obtain a search warrant — lays out details of the criminal case Texas Rangers are trying to build. The Cains have not been charged with a crime:

Windcrest had wooed Rackspace to move into the former Windsor Park Mall through an incentive agreement. Gary Cain reached a deal with the city to acquire the vacant mall and develop the nearby property.

Gary Cain was tasked with financing the purchase of four tracts that comprised the mall, which would be transferred to the Windcrest Economic Development Corp. for tax abatement purposes. Gary Cain was to recoup the costs when Rackspace paid $27 million up front on its lease.

Cain was required to provide a sworn cost certification to the economic development corporation to prove that Rackspace’s lease did not exceed the cost of acquiring the properties, according to the company’s lawsuit.

The search affidavit alleges that Gary Cain fraudulently inflated the costs by more than $7 million, and that Ronnie Cain knew the true value of the land.

“But Ronnie Cain stood silent at the meeting … as his brother misrepresented the sales prices of the properties to Windcrest city officials,” the affidavit reads.

The affidavit accuses the brothers of lavish spending — Gary Cain’s daughter was even featured on MTV’s “My Super Sweet 16.”

Update: Here’s the entire affidavit in a pdf file:

Search warrant affidavit alleges Rackspace was defrauded by John Tedesco

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