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:
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that
Dreamworld had received a $300 million financing commitment
from a New York-based financial institution; |
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that
Dreamworld owned the parcels of land needed to build the
planned equestrian park; |
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that
Dreamworld held valid options on the other parcels of land
needed to construct the theme park; |
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that
major U.S. corporations, such as Miller Brewing Company,
had committed to sponsoring Dreamworld; and |
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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?
07/19/02
I Said a Minus 100% Return
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
Associated Press
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.
Britons pay the price on Costa del Scam
08/06 - A short drive from the centre of the glitzy resort of
Marbella on the edge of a banana plantation with views over the
Mediterranean, the newly built beach front apartment seemed too
good an opportunity to miss for Jack and Yvonne Burditt.
The Devonshire couple were looking to invest their life savings
on a home to spend their retirement in so they handed over more
than €250,000 (£170,000) and moved in right away.
Three years later they are still there but instead of enjoying
sunsets from their terrace they are keeping a watchful eye out
for the bulldozers they fear will come to demolish their home.
The Burditts are among the many victims of an alleged property
fraud that has rocked the town of Marbella on the Costa del Sol
and landed more than 50 people including the mayor, councillors,
developers, estate agents and lawyers in prison, pending trial
for fraud, embezzlement and other charges.
In April the Madrid government took the unprecedented step of
dismissing the entire town council after an investigation, dubbed
Operation Malaya, claimed that it was embroiled in a network of
bribes and corruption, siphoning cash from the huge construction
boom of Spain's southern coast.
It is alleged that under the chief of urban planning, Juan Antonio
Roca, the town hall accepted bribes for, among other things, granting
building permits on land not designated for construction.
It is thought that about 30,000 of the 80,000 Marbella properties
built in the past decade have been constructed illegally, and at
least 4,500 of these face court decisions on whether they should
be demolished or legalised.
Those in most danger of being flattened are buildings constructed
too close to the sea or on public parkland such as the Burditts'
home at Banana Beach.
"It came as such a shock to us to hear that our building
is on what is essentially green belt land and shouldn't be here," said
Mrs Burditt, 83, who was assured by a local lawyer that everything
was above board when she and her husband made the purchase.
"Our block was listed on the local news as one of those likely
to be demolished but we have heard nothing official. It's torture
not knowing what is going to happen."
That sentiment is shared by scores of other British investors
left in limbo as to the fate of their properties. Christopher Winter,
a music producer from Rangeworthy, near Bristol, and his wife have £40,000
invested in a rural property in the hills above Marbella that they
had hoped to rent out as a holiday home before reselling at a profit.
"We paid the deposit in March 2003 and were due to take possession
last spring but before we paid the final £100,000 we found
out that the land was not designated for this type of building
and it was therefore illegal," he said.
"The decision we have to make now is do we pay the rest and
possibly throw good money after bad in the hope that the building
is approved or do we pull out, lose the £40,000 and hope
for compensation?"
It is not only foreign purchasers who are suffering. Thousands
of locals have also been affected. Antonio Banderas, the Spanish
actor, made headlines when it emerged that one of his properties
could also face demolition for not having the proper authorisation.
Gwilym Rhys-Jones, an adviser and investigator at the Costa del
Sol Action Group, which helps expatriates in the region to fight
fraud, estimates that it could cost almost £4.5 billion to
compensate those caught up in the swindle. "That's the minimum
figure officials say it will cost them to indemnify innocent parties
caught up in Marbella's building scandal," he said.
"It's a nightmare for everyone involved as there is no way
the council can afford that.
"As we now know, the town's coffers have been drained by
all the embezzlement and Marbella has been left poor."
The true extent of the scandal is not yet known but is thought
to run into billions. Initial raids as part of the ongoing Operation
Malaya seized large amounts of hidden cash along with 200 fighting
bulls, 103 thoroughbred horses, 275 works of art, a helicopter
and four Porsches.
According to one local lawyer it was only a matter of time before
such things were discovered.
"Of course everyone knew to some extent what was going on
but there was so much corruption on all levels that it was impossible
to fight it," said Rafael Berdaguer Abogados, a property law
expert.
The Telegraph - UK
Irving Stitsky, Alan Shapiro and William Foster, Arrested for
Real Estate Investment Scam
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.
Newsday.com
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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