Real Estate Developers Sued for Investment Fraud Scam

Allison Tussey —  February 19, 2013 — 3 Comments

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, and Ricky Lynn Stokes, sales director, former Cay Clubs executives, have been charged with an investment fraud scheme. 

The complaint alleges that Cay Clubs Resorts and Marinas raised more than $300 million from nearly 1,400 investors nationwide through a network of hundreds of sales agents, marketing seminars, and podcasts that touted the profitability of purchasing units at Cay Clubs resort locations. Investors were promised immediate income from a guaranteed 15 percent return and a future income stream through a rental  But instead of using investor funds to develop resort properties and units, the Cay Clubs executives used new investor deposits to pay leaseback returns to earlier investors. Meanwhile they paid themselves exorbitant salaries and commissions totaling more than $30 million, and investor funds also were misused to buy airplanes and boats. While still advertising itself as a profitable venture, Cay Clubs eventually abandoned its operations. Many investors’ properties went into foreclosure.

The SEC’s complaint was filed in U.S. District Court for the Southern District of Florida.

According to the SEC’s complaint, the scheme began in 2004. Clark, Coleman, Graham, and Stokes solicited investors with promises of guaranteed income, instant equity in undervalued properties, historic appreciation, and at least $30,000 in upgrades to the units they purchased at Cay Clubs resort locations in Florida and Las Vegas. The representations about investors’ profitability and instant equity were false because the purported triple-digit returns resulted from undisclosed insider transactions with Cay Clubs by Coleman, Graham, and Stokes. Their actions made it appear that Cay Clubs units had enormous rates of appreciation over a short period of time when in fact the transactions were merely part of an insider flipping scheme. Further, Stokes wrote letters directly to potential investors claiming that the leaseback payments and profits were “guaranteed” and that Cay Clubs was a “very stable financially healthy company worth BILLIONS.”

The SEC alleges that Cay Clubs continued to solicit new investors despite the fact that the company’s financial condition had deteriorated so significantly that it did not have sufficient funds to make the “guaranteed” leaseback or rental payments to investors. Clark, Coleman, and Schwarz misappropriated millions of dollars in investor funds using the multitude of bank accounts they controlled. Besides purchasing airplanes and boats, they misused investor money for unrelated business ventures including investments in precious metals and a liquor distillery that produced Pirate’s Choice Rum. After Cay Clubs abandoned its operations in 2008, Clark and Coleman (who are now husband and wife) moved to the Cayman Islands and continued to dissipate assets and funnel at least $2 million to offshore accounts.

The SEC’s complaint seeks financial penalties from Clark, Coleman, and Stokes and the disgorgement of ill-gotten gains plus prejudgment interest by all five executives. The complaint also seeks injunctive relief to enjoin them from future violations of the federal securities laws as well as an accounting and an order to repatriate investor assets.

“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.”

The SEC’s investigation was conducted in the Miami Regional Office by Senior Counsel Linda S. Schmidt and Senior Regional Accountant Fernando Torres under the supervision of Assistant Regional Director Jason R. Berkowitz. Senior Trial Counsel Amie R. Berlin will lead the SEC’s litigation.

Be Sociable, Share!

3 responses to Real Estate Developers Sued for Investment Fraud Scam

  1. Real estate and fraud are one.

    • Ya i knew this was to good to be true. i look at there units in Key Largo.The price was around $379.000 to $450,000 went back a year later and price point was at $750,000 to $ 950,000 Scams are all the same. Greed will get the last Pig at the trough Bacon

  2. Just got off the phone with an attorney from the SEC. They are refiling against Cay clubs tomorrow and need a copy of the Las Vegas Cay Clubs condo docs CD. Can’t find mine. Anyone have a copy?

    Let me know. e-mail tcpcorp@aol.com

Leave a Reply

*

Text formatting is available via select HTML.

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>