Stephanie Ostrowski Feb. 12, 2013, 4:10pm
WASHINGTON (Legal Newsline) - Five former real estate executives deceived investors to buy into a Ponzi scheme when they believed they were funding the development of five-star resorts in Florida and Las Vegas.
The Securities and Exchange Commission announced Jan. 30 that Cay Clubs Resorts and Marinas allegedly raised more than $300 million from nearly 1,400 investors nationwide. Cay Clubs used hundreds of sales agents, marketing seminars, and podcasts in order to raise the profitability of purchasing units at their made-up resorts.
Cay Club executives used the investor deposits to pay leaseback returns to earlier investors while paying themselves exorbitant salaries and commissions totaling more than $30 million, and purchasing airplanes and boats, the SEC claims.
According to the SEC, investors were misled into a future income stream through a rental program that Cay Club managed with immediate income and a 15 percent return.
The actions of the former executives, beginning in 2004, made it appear to investors that Cay Clubs units had an enormous rate of appreciation over a short period of time. Despite the company's deteriorating financial condition, Cay Clubs continued to solicit new investors.
Eventually Cay Clubs did not have the funds to make the leaseback or rental payments to investors, according to the SEC.
As a result, investors' properties fell into foreclosure while Cay Clubs was still advertising itself as a profitable venture but eventually abandoned its operations.
The SEC's complaint filed in U.S. District Court for the Southern District of Florida charges the following former Cay Clubs executives:
* Fred Davis Clark Jr., president and CEO
* David W. Schwarz, chief accounting officer
* Cristal R. Coleman, manager and sales agent
* Barry J. Graham, sales director
* Ricky Lynn Stokes, sales director
"These Cay Clubs executives lined their pockets with millions of dollars that they told investors would be used to develop five-star resort properties," said Eric I. Bustillo, Director of the SEC's Miami Regional Office. "They continued to defraud investors as Cay Clubs collapsed."
Clay, Coleman, and Schwarz also allegedly misused investor funds by investing in precious metals and Pirate's Choice Rum, a liquor distillery.
Cay Clubs operations stopped in 2008. Thereafter Clark and Coleman, now married, moved to the Cayman Islands and continued to disperse assets and funnel at least $2 million to offshore accounts.
Financial penalties are sought, according to the SEC's complaint, from Clark, Coleman, and Stokes and the disgorgement of all ill-gotten gains plus prejudgment interest by all five former executives.
The complaint also seeks a ban for the former executives from future violations of the federal securities law including accounting and an order to repatriate investor assets.