Real Estate Fraud / Development Schemes
And One Over on Everyone Else
A businessman who wrote about his rags-to-riches story in numerous books dealing with real estate investment opportunities plead guilty to six felony charges related to a multi-million dollar scheme in which he defrauded scores of mostly elderly investors.
This president and chief executive officer of American Capital Investments Inc. was the author of "One Up On Trump" and ten other books about real estate investment and personal motivation.
In his books, newspaper ads and in numerous public appearances at seminars and on television broadcasts, he portrayed himself as a Vietnam vet and former alcoholic who lived on the streets and in his car for a while.
He claimed to turn his life around in the early 1990's when he started ACI, which developed into a $100 million commercial real estate firm.
He portrayed himself as a real estate investment genius —the next Donald Trump —but the empire was built on the lies he told clients to secure their investments.
He got investors to provide capital to purchase commercial office buildings by misrepresenting various facts, including falsely stating that another buyer had been lined up to purchase part of the particular property he was buying, and that the quick sale of a portion of the property would allow him to pay back the investors with a substantial profit in as little as thirty days.
He also misrepresented the profitability of the buildings he was purchasing, and, in some instances sold interests in buildings that he had never purchased or owned.
Leaving out such particulars, he published books that touted his investment strategy and using those books to lure new investors to ACI he was able to raise more than $18 million from investors who lost at least $10 million of it.
In Your Dreams
Two people defrauded approximately twenty investors, mainly family members and family friends, out of over $200,000 through a development scheme which was to rival Disney World.
They began by promoting their concept of constructing a huge theme park and entertainment complex.
They advised potential investors that their "Dreamworld" was going to feature an underground roller coaster, high tech virtual reality rides and traditional amusement park attractions.
They also promoted Dreamworld's series of satellite parks, such as a 172-acre Western equestrian center, a 30-acre water park, and a three-rink Ice Palace that would feature a speed-skating rink suspended above it.
They falsely told family members and family friends:
|that Dreamworld had received a $300 million financing commitment from a New York-based financial institution;|
|that Dreamworld owned the parcels of land needed to build the planned equestrian park;|
|that Dreamworld held valid options on the other parcels of land needed to construct the theme park;|
|that major U.S. corporations, such as Miller Brewing Company, had committed to sponsoring Dreamworld; and|
|that any investment in Dreamworld could not be lost because of the existing assets of the corporation.|
These misrepresentations were made as part of a fraudulent sales pitch in which investors were falsely advised that they had to purchase their Dreamworld stock immediately, because it was on the verge of closing to outside investors.
Twice Bitten By Alligators
Thousands of people owning unimproved land in areas of Florida, where such property is difficult to sell, were targeted by a group which told them their properties would be advertised for a full year and that they themselves would buy any which did not sell in one year.
In reality only one or two inexpensive ads were placed in local newspapers in exchange for fees which ranged from $249 to more than $800.
None of the ads resulted in sales and no guaranteed purchases were made.
Another group which used tax rolls to gather leads contacted property owners and persuaded them to purchase additional land on the pretext that this newly purchased land could be packaged with the land they already owned and then sold to non-existent European investors at a tremendous profit to the victim.
Building Your Own Poor House
Citi-Equity of California urged investors to buy shares in limited partnerships in order to purchase properties for the construction of low-income housing projects
The promoter assured investors that once the units were rented they could claim up to $9900 a year tax credit for ten years thereby helping the poor and saving taxes at the same time in a government-endorsed program.
By stringing along builders he was able to embezzle about $130 million from 7000 investors who, in addition to their losses, ended up having to pay back the written-off taxes because the project never materialized and therefore wasn't eligible for the tax credits.
Broker's a Flipping Joker
As a new real estate investor, I was referred to a banker/mortgage broker in September 2001 who said I had bad credit and that he would have to pull a lot of strings to help me buy an investment property.
I first had to pay $500 for a commitment fee which would cover an appraisal and a credit report. I then made a $500 earnest payment to his business.
I told him about a credit line I had with my credit cards and he suggested that I pull out $20k to have as "show money" so lenders would see that I had back up money.
I then had to borrow money, $8k from my family and girlfriend plus $4k of my own which would go into a "reserve account" for me to buy this property. This reserve account was not in my name, but the business name.
He also said he could invest some of my money from my credit card advances ($20k) for house flipping and that I would get a $6k return.
I had $10k cash that he requested with the borrowed money. When I asked for a receipt he gave it to me on notebook paper.
When I called the bank with the account #, they told me it was not my name on the account but the broker's brother.
What happened next? His office closed down. He said one of the mortgage brokers stole his files and he had to move my money to save it. It's now supposedly frozen but he cannot tell me where it is at.
He has paid me about $28k back so far and says he has to pay me back from some real estate deals that he has and will give me some more money to compensate me.
I have threatened to take him and his brother down if he doesn't pay. He denies using the money for his personal use or gain.
I have a picture of him, which he was so mad that I had my friend take. I am hoping to get more money this week. Do you have any advice or guidance for me?
I Said a Minus 100% Return
(Associated Press) 10/02 - Selva Carmichael, 41, who wooed investors with trips abroad and promises of a quick return on their money, was jailed for four-and-a-half years for cheating investors in a Spanish property scam.
Carmichael, who operated his company, The Carmichael Corporation, from offices in Bristol, offered people the chance to invest in property or plots of land in the Spanish resort of La Manga.
But soon after the operation began in 1996 "the whole thing was falling to bits". Most of the investors never saw their money again including one woman who lost £100,000.
Despite a police raid on his offices in 1997, Carmichael continued to trade as normal, telling investors that it was "all a mistake" and blaming the police for his problems.
Promising investors that he was going to transform the La Manga resort, the self-proclaimed multi-millionaire, "wooed" his investors with lavish trips to apartments in Spain and promised them a 100% return within six months.
Carmichael pleaded guilty to nine counts of obtaining money transfers by deception and one count of attempting to obtain property by deception. It was not known what Carmichael had done with the money.
Man accused of selling Florida swamp land in classic scam
MIAMI - 04/02/04 - A Hernando man sold Everglades swampland to unsuspecting investors for more than $300,000 amid false promises that the marshy property would be rezoned for development, investigators said.
Dudley Cohn, 72, persuaded at least 13 people to buy 1 1/4 acre lots for $15,000 each, but each lot was worth only $1,000, according to an arrest affidavit.
Cohn, who was once acquitted of a similar plot, knew that the U.S. government was going to buy the properties at low prices to add them to Everglades National Park, the affidavit said.
Nor did Cohn disclose to buyers Miami-Dade County restrictions that require each home in that area have at least 20 open acres around it, the affidavit said.
"Our case starts in 1988 with different victims and different properties, although the properties were in the same general area" in both cases, said JoAnn Carrin, spokeswoman for the Florida attorney general's office.
He was arrested Tuesday and was being held in the Citrus County Jail pending transfer to Miami, Carrin said Thursday. He was charged with first-degree organized scheme to defraud, which has a maximum penalty of 30 years in prison.
It could not immediately be determined Friday if he had a lawyer. Cohn faced the same accusations 22 years ago. A judge acquitted him of felony "organized scheme to defraud."
Cohn conducted his business through Florida corporations named Moving West Corp., Dudco and Westwood-Ho, officials said.
Cohn also is accused of pressuring buyers into making accelerated payments to him in order to collect the money before the federal government moved to acquire the property for much less than the original selling price.
The purchasers only found out about the federal government's plan to acquire their land after they received their deed and their names and addresses became public records.
When they confronted Cohn, the affidavit said, he was evasive and told them not to worry or to fight the government.
Juan Lubian, 41, of North Miami, said he lost about $21,000 on a worthless lot.
"But I thought it was a sure thing; you buy land, it sits there forever. I thought it was perfect for retirement," Lubian said Thursday of the 1989 transaction.
Irving Stitsky, Alan Shapiro and William Foster, Arrested for Real Estate Investment Scam
(Newsday.com) 03/06 - Three men, including a former top executive of the now-defunct Stratton Oakmont Inc. brokerage in Lake Success, were arrested yesterday and charged with bilking $16 million from investors in a phony real estate scheme and using the money to pay personal debts or buy jewelry, cars and homes, the U.S. attorney's office in Manhattan said.
The three - Irving Stitsky, 51, of Bayside; Alan Shapiro, 47, of Glastonbury, Conn.; and William B. Foster, 66, of Williamsburgh, Mass. - were charged with bilking about 150 investors by setting up a phony firm, according to a complaint filed in U.S. District Court in Manhattan.
While the firm, Cobalt Capital, was headquartered in Springfield, Mass., investors were solicited from a "boiler room" office on Cutter Mill Road in Great Neck.
The complaint charges that two private placement memorandums offered between 20 and 250 units of membership interests at a price of about $100,000 per unit.
Investors were told Cobalt intended to "pursue and promote investment opportunities" in real estate throughout the United States.
Documents also included brochures describing a project involving a property formerly known as the Simone Hotel in Miami Beach.
The three, the complaint says, misappropriated funds invested in Cobalt from July 2004 through November 30, 2005.
Stitsky ran the Great Neck office, according to the complaint. The complaint said Stitsky is a twice-convicted felon who is on pretrial release in connection with pending securities fraud and money-laundering charges in a case in New Jersey.
In 1998, Stitsky, a former managing director of Stratton Oakmont, was permanently barred from the securities industry and fined $100,000.
At the time, regulators said the penalties were for manipulative and fraudulent practices during the initial public offerings of shoe retailer Steven Madden Ltd. in 1993 and Solomon-Page Group the next year.
Stratton Oakmont served as underwriter for both offerings. The firm was closed in 1996 for fraud.
A call to Eric Franz of Manhattan, identified as Stitsky's attorney, was not returned. The U.S. attorney's office said lawyers for the other two defendants had not stepped forward.
The complaint said Shapiro ran the real estate scheme from an office in Springfield.
It said neither Cobalt nor its sales force disclosed to investors that Shapiro had been convicted of bank fraud and conspiracy to commit tax fraud.
While the three told investors they were seeking real estate opportunities, the money they collected went for other purposes, the complaint said, charging that, "hundreds of thousands of dollars of Cobalt funds were used to pay for construction costs" related to a Shapiro home.
About $2.2 million was used to pay Shapiro's personal expenses, including jewelry and cars. About $214,000 of investor funds was used for restitution owed by Shapiro from his prior convictions for bank and tax fraud, the complaint said.
It is alleged that Foster received about $646,000 in funds, and Stitsky received loans or advances of about $48,000.
If convicted, the three each face a maximum 20 years in prison on securities fraud charges and a $5 million fine. They also face five years in prison on conspiracy charges and a $250,000 fine.
03/06 - SPRINGFIELD, Mass. -- (AP) Three investment firm executives have been accused by federal authorities of swindling $16 million from people in high-pressure real estate deals.
Mark Shapiro, 45, of Glastonbury, Conn., and William Foster, 66, of Easthampton, were arrested by FBI agents Monday at their Cobalt Capital headquarters in Springfield.
Foster was freed on $250 bond following a hearing Wednesday in U.S. District Court in Springfield.
Shapiro, who spent 30 months in prison after a 1998 bank fraud conviction and allegedly used some money he swindled through Cobalt to pay the $350,000 he owed from that case, was ordered held without bail Wednesday.
The third executive, Irving Stitsky, of Bayside, N.Y., was arrested at Cobalt's office in Great Neck, N.Y., and is also free on bond.
Stitsky pleaded guilty in 2001 to securities fraud, wire fraud and bribery. He also has a money laundering and fraud case pending in New Jersey.
According to a federal complaint charging the men with securities fraud and conspiracy, Cobalt employed telemarketers who made fast, high-pressure calls to potential investors.
Phone records for the company's office in Great Neck, N.Y., show that tens of thousands of long-distance calls - most less than one minute - were made to locations across the country, according to an affidavit by FBI Agent Jennifer May.
"Based on my experience and training, the calling patterns reflected in the telephone records are consistent with those of a `boiler room' operation," May wrote.
Raipher Pellegrino, Foster's lawyer, said Cobalt was soliciting legitimate investments for residential and commercial properties in Florida and Texas.
"These are real properties that are being developed," Pellegrino said. He said "many investors are getting returns on their money," but would not say what the average rate of return is.
Authorities say Shapiro, Stitsky and Foster gave themselves loans and paid for personal expenses with investors' money. They allegedly set up an account with the money that was used to write checks to a jewelry store and to make car payments.
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