Owners Indicted for Stealing Clients’ 1031 Exchange Deposits

admin —  January 8, 2010 — Leave a comment

John D. Terzakis, 52, Hinsdale, Illinois, and Robert E. Estupinian, 47, San Jose, California, were arraigned in federal court for 12 felony counts of wire fraud, money laundering, and conspiracy to commit wire fraud and money laundering, in an indictment that accused the pair of operating their company, Vesta Strategies, as a Ponzi-scheme.

According to the indictment, Terzakis was the majority owner of Vesta Strategies (“Vesta”) and controlled its business activities. Estupinian was the former Chief Executive Officer and minority owner of Vesta until approximately December, 2007. Vesta, based in San Jose, California, was a qualified intermediary for the purpose of conducting tax-deferred real estate exchanges pursuant to Internal Revenue Service Code Section 1031 (26 U.S.C. § 1031). In general, a Section 1031 exchange allows taxpayers to avoid paying tax on capital gains by depositing the proceeds from an investment real estate sale, that would otherwise qualify as a taxable capital gain, with a qualified intermediary for up to 180 days. Under Section 1031, if the taxpayer purchases another investment property within those 180 days, the proceeds from the first sale may be rolled over into the new investment without being taxed as capital gains.

The indictment alleges that Terzakis and Estupinian solicited and caused others to solicit prospective clients to deposit funds with Vesta based upon, among other false representations and promises, the promise that Vesta would hold those deposits and return them as promised. Instead, the defendants stole client funds for their own use, and also that they used new client deposits to pay redemptions owed to earlier clients.

Shortly before the collapse of the scheme in July 2008, Terzakis and Estupinian sued each other in federal court in San Jose, blaming one another for misappropriating Vesta client deposits. The case number for those matters is C 07-06216 JW. In August, 2009, a federal civil class action was filed in San Jose, California federal court against Terzakis, Estupinian and others by the Vesta clients alleging misappropriation of client funds. That matter, case number C 09-02388 JW, is also pending.

Terzakis was arrested in Hinsdale on Jan. 6, 2010, and made his initial appearance in federal court in Chicago on that same date. He is currently in home confinement with electronic monitoring. Terzakis’ next scheduled appearances are on Jan. 13, 2010 in Chicago for further bail proceedings, and on Jan. 28, 2010, in San Jose federal court for further case proceedings before Magistrate Judge Patricia V. Trumbull.

Estupinian was arrested in San Jose on January 6, 2010, and made his initial appearance in federal court in San Jose on that same date. He is currently in home confinement with electronic monitoring, secured by a $1 million bond. His next scheduled appearance is at 10 a.m. on Jan. 20, 2010, in San Jose federal court for further bail proceedings before Magistrate Judge Trumbull.

The maximum statutory penalty for each count of wire fraud and conspiracy to commit wire fraud, in violation of 18 U.S.C. §§ 1343 and 1349, respectively, is 20 years imprisonment, a fine of $250,000 or twice the gross gain or twice the gross loss to any victim, and restitution. The maximum statutory penalty for each count of money laundering, and conspiracy to launder monetary instruments, in violation of 18 U.S.C. §§ 1957 and 1956(h), respectively, is 10 years imprisonment, and a fine of $250,000 or twice the amount of the criminally derived property involved in the transaction. The government is also seeking forfeiture from the defendants in the amount of $24,633,341.34. However, any sentence following conviction would be imposed by the court after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.

Daniel Kaleba is the Assistant U.S. Attorney who is prosecuting the case with the assistance of Susan Kreider. The prosecution is the result of an investigation by the Federal Bureau of Investigation.

Please note, an indictment contains only allegations against an individual and, as with all defendants, Terzakis and Estupinian must be presumed innocent unless and until proven guilty.

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