Sunday, May 28, 2023 | Back issues
Courthouse News Service Courthouse News Service

Former Resort Exec Asks Panel to Overturn 40-Year Fraud Sentence

An attorney for a former resort executive sentenced to 40 years in prison for a $300 million vacation rental scam asked an 11th Circuit panel Thursday to either reverse the judgment against him or grant him a new trial.

ATLANTA (CN) — An attorney for a former resort executive sentenced to 40 years in prison for a $300 million vacation rental scam asked an 11th Circuit panel Thursday to either reverse the judgment against him or grant him a new trial.

David Schwarz, the former chief financial officer and one-third owner of the Cay Clubs Resorts and Marinas, was convicted in March 2017 of conspiracy to commit bank fraud, bank fraud and interference with the administration of the IRS.

The Elbert P. Tuttle U.S. Courthouse in Atlanta, home of the 11th Circuit Court of Appeals. (Photo via Eoghanacht/Wikipedia Commons)

According to court documents, Cay Clubs “operated as a mortgage fraud scheme from its inception.”

Schwarz, who was 60 years old when his 40-year prison sentence was handed down in Miami federal court, fraudulently obtained $300 million from about 1,400 investors who purchased vacation rental units in Cay Clubs developments.

He was ordered to pay $181 million in restitution to the IRS and his victims.

On Thursday, Schwarz’s attorney told a three-judge panel of the Atlanta-based appeals court that the judgment against her client should be reversed due to numerous trial errors, including the lower court’s refusal to grant Schwarz’s trial lawyer continuances for more time to wade through the thousands of documents relevant to the defense.

Along with his co-conspirator, Cay Clubs CEO Fred Davis Clark Jr., Schwarz used family members to purchase condominium units using money from Cay Clubs bank accounts while also obtaining financing from banks for the properties.

The two men used sales numbers generated from those fraudulent purchases to show demand for Cay Clubs units and to inflate prices. They then used Cay Clubs employees to distribute marketing materials containing misleading information to induce banks and investors to buy units.

Millions of dollars in investor money raised by Clark and Schwarz was funneled into their own bank accounts, which they used to buy property and other businesses including a rum distillery, an airport operation, boats, aircraft, a coal reclamation business and a gold mine.

In 2016, Clark was sentenced to 40 years in federal prison for his role in the scheme.

Arguing on behalf of Schwarz on Thursday, attorney Sonia O’Donnell of Miami told the panel that the government failed to prove there was any conspiracy at all, claiming that the collapse of Cay Clubs was actually precipitated by the 2008 real estate crash.

“These were legitimate apartments that were bought at a time when later on there was a crash, which [Schwarz] was not allowed to tell the jury… This is a situation where [the government] put in a number of people who said they bought apartments and lost money. Well, a lot of people lost money at that time because there was a crash,” O’Donnell argued. “There’s no evidence of a conspiracy here.”

But Justice Department attorney Sonja Ralston insisted that the existence of the conspiracy was clear.

“[Clark and Schwarz] used federally insured banks as their own personal piggy banks,” she argued Thursday. “Evidence proves that throughout the scheme Schwarz knew the sales were fake… When their Ponzi scheme fell to Earth, defendant continued to lie about what happened and cover up the fraud to his investors, the FTC, the IRS, and to the jury.”

“The trial was fair, the convictions are just, and the sentence is appropriate,” Ralston added. “Schwarz has never pointed to a single piece of evidence that would have led to his acquittal.”

Ralston also refuted O’Donnell’s statements regarding the 2008 financial collapse, pointing out that the Cay Clubs scheme “fell apart” between 2006 and 2007, before the crash.

The 11th Circuit panel was comprised of U.S. Circuit Judge Beverly Martin, a Barack Obama appointee, U.S. Circuit Judge Kevin Newsom, a Donald Trump appointee, and U.S. District Judge W. Keith Watkins, a George W. Bush appointee sitting by designation from the Middle District of Alabama.

The panel did not indicate when it would reach a decision in the case.

Read the Top 8

Sign up for the Top 8, a roundup of the day's top stories delivered directly to your inbox Monday through Friday.