December 1, 2020

The SEC alleges that Cay Clubs Resorts was a $300-million plus Ponzi scheme.

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pyramidBy Martha Brannigan, Miami Herald

The Securities and Exchange Commission charged five former real estate executives with defrauding nearly 1,400 investors of more than $300 million in an alleged Ponzi scheme involving investments in Cay Clubs Resorts and Marinas.

The SEC complaint filed Wednesday in U.S. District Court in Miami names Fred Davis Clark, Jr., 54, of Grand Cayman, Cayman Islands, who was the former president and CEO of Cay Clubs, and his wife Cristal R. Coleman, 39, who was a manager and sales agent; Barry J. Graham, 57, of Marathon, Fla., a former sales director; David W. Schwarz, 56, of Orlando, who was the former chief accounting officer; and Ricky Lynn Stokes, 53, of Fort Myers, who was a former sales director.

Clark and Schwarz launched Cay Clubs in 2004 and operated it from Clark’s home at the time in Key Largo, the agency said. The venture eventually entailed a web of more than 100 companies and 150 bank accounts.

The scheme involved a network of hundreds of sales agents, marketing seminars and podcasts to promote the purported opportunities of investing in units at Cay Clubs resorts, the SEC said.

Cay Club investors were promised an immediate 15 percent return through a two-year leaseback of their purchases and a future stream of rental income on their properties, according to the complaint.

In classic Ponzi scheme fashion, instead of using the investor funds to develop resort properties and units, the Cay Club executives used new investor funds to pay returns to other investors, the SEC alleges.

Cay Clubs purported to focus on renovating aged and abandoned condominium projects in the Florida Keys, Central Florida and Las Vegas and turn them into luxury five-star resorts, the SEC said. Cay Clubs solicited investors between 2004 and 2007.

The SEC argues the real estate investments were unregistered securities in violation of federal law. In addition, the agency alleges violations of anti-fraud provisions of federal securities law.

In 2008, Cay Clubs abandoned operations, leaving many investors in a lurch as their properties – purchased from Cay Club at grossly inflated prices – went into foreclosure, the SEC said.

The agency said executives received “exorbitant salaries and commissions’’ totaling more than $30 million and siphoned off investor funds to buy airplanes and boats.

According to Bruce Barnes, a Tampa attorney who represents various Cay Clubs investors in civil suits, Stokes was an American Airlines pilot who solicited co-workers to invest in the real estate venture.

“I represent a number of American Airlines pilots and a number of the investors are friends of American Airlines pilots,’’ said Barnes, who applauded the SEC action: “It’s nice to know it is not just the investors who are arguing that this was a massive fraud, because that’s what it was.’’

After Cay Clubs closed, Clark and his wife Coleman moved to the Cayman Islands and funneled at least $2 million to offshore accounts, according to the SEC – funds the agency now plans to fight to get back in court.

Jeffrey L. Cox, a Boca Raton attorney representing Fred Davis Clark, said: “We intend to vigorously defend these allegations in court.’’

The SEC said Clark currently is co-chairman of CMZ Group Ltd., a Cayman firm that includes a Caribbean pawn shop network and a spirits business, among other ventures.

Russell C. Weigel III, a Miami attorney for Stokes, declined to comment Wednesday.

Phillip J. Snyderburn, a Maitland attorney for David Schwarz, also declined to comment, saying he had not yet had an opportunity to review the SEC complaint.

Ryan O’Quinn, a Miami attorney for Coleman, couldn’t immediately be reached. Graham also couldn’t be reached.

The SEC said it is seeking unspecified money penalties from Clark, Coleman and Stokes and the return of ill-gotten gains and interest from all five people charged. The agency also is seeking an injunction to block future securities violations.

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NOTE: A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from profit earned by the individual or organization running the operation. The Ponzi scheme usually entices new investors by offering higher returns than other investments, in the form of short-term returns that are either abnormally high or unusually consistent. Perpetuation of the high returns requires an ever-increasing flow of money from new investors to keep the scheme going. Source: Wikipedia



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