SEC Accuses Five of $300 Million Ponzi
MIAMI (CN) - Five real estate sharks defrauded investors of $300 million in a Ponzi scheme, claiming they were building resorts in Florida and Las Vegas, and skimmed $33 million off the top, the SEC claims in court.
The defendants took more than $300 million from 1,400 investors, "directly and through Cay Clubs Resorts and Marinas," claiming they were selling "units in purported five-star luxury resorts at 17 locations nationwide," the SEC says in its federal complaint.
It did not sue Cay Clubs; it sued its CEO Fred Davis Clark Jr. aka Dave Clark; Clark's wife Cristal R. Coleman aka Cristal Clark; sales director Barry J. Graham; investor relations director Ricky Lynn Stokes; and CFO David W. Schwarz.
All the job titles refer to defendants' positions when the alleged scam occurred, which the SEC says was from November 2004 or earlier until at least July 2008.
The complaint states: "From no later than November 2004 until at least July 2008, the defendants, directly and through Cay Clubs Resorts and Marinas ('Cay Clubs' or the 'Company'), raised more than $300 million from approximately 1,400 investors through the offer and sale of units in purported five-star luxury resorts at 17 locations nationwide.
"Clark, Cay Clubs' president and CEO; Coleman, a managing member and
registered agent of certain affiliated entities; Graham, the director of sales; and Stokes, the director of investor relations, made numerous material misrepresentations and omissions to investors through conversations and marketing and offering materials. Among other things, the four falsely claimed that leaseback agreements that were part of the purchase provided investors a guaranteed 15 percent return on their investments.
"These claims were false. Cay Clubs did not pay the guaranteed returns to all
investors and beginning in mid-2006, failed to pay them to any investors. Even as Cay Clubs failed to produce profits, Clark, Coleman, Graham, and Stokes continued to lure investors with the false promise of a guaranteed return on the leaseback agreements.
"Clark, Coleman, Graham, and Stokes also told investors: Cay Clubs would
renovate and upgrade real estate properties into a network of five-star destination resorts; the real estate properties provided instant equity because they were undervalued; and Cay Clubs' properties had historically appreciated by up to 300 percent.
"These claims were also false. The defendants did not renovate the properties into five-star resorts, the properties were not undervalued, and the appreciation rates were bogus. In truth, Clark, Coleman, Graham, and Stokes engaged in a scheme to flip the units amongst themselves in order to artificially increase their values and create the false appearance of appreciation and demand.
"Cay Clubs was not the successful business Clark, Coleman, Graham, and Stokes
claimed it was. By April 2005, in Ponzi scheme fashion, Clark and Schwarz, Cay Clubs' CFO, started using new investor funds to pay leaseback returns to earlier investors.
"Clark, Coleman, and Schwarz also misappropriated more than $33 million either
as exorbitant salaries and commissions or to fund personal expenses and business ventures."
Clark, 54, lives in Grand Cayman, Cayman Islands, as does his wife, 39. Dave Clark founded Cay Clubs with Schwarz in July 2004, and "owned two-thirds of the more than 100 entities that comprised Cay Clubs," the SEC says.
"Clark has never been registered with the Commission in any capacity," according to the complaint.
CMZ group, a Cayman Island entity that the SEC said Clark co-chaired, announced that Clark separated from the company a day before the complaint was filed.
Graham, 57, lives in Marathon, Fla. "In 1984, Graham pleaded no contest to a third-degree felony for selling unregistered securities in Florida and was sentenced to five years' incarceration and five years probation," the SEC says in the complaint.
Stokes, 53, lives in Fort Myers, and Schwarz, 56, in Orlando.
The SEC seeks disgorgement, repatriation of money, an accounting, penalties and injunctions.