The regulator for the US financial industry has filed an amended complaint in US federal court against five people, including two former Cayman Islands residents, it accuses of running a US$300 million Ponzi scheme based in Florida. The defendants include a pair of former local residents, Fred Davis Clark Jr. and his wife Cristal R. Coleman, who are identified in the new filing as now residing in Honduras.
The attorney for Mr. Clark and Ms Coleman said they “categorically deny” all allegations of wrongdoing and “intend to disprove”
The US Securities and Exchange Commission’s amended complaint in the US District Court for the Southern District of Florida is similar in many respects to the original complaint it filed on 30 January.
In general, the SEC accuses Mr. Clark, Ms Coleman, and three other defendants who reside in Florida, of raising US$300 million from some 1,400 investors between 2004 and 2008 for their Cay Clubs Resorts and Marinas, which was marketed as a resort development project but which the SEC claims was actually a Ponzi scheme.
According to the filing,
“Cay Clubs was purportedly in the
business of renovating aged and abandoned condominium projects at 17 locations, located primarily in the Florida Keys, Central Florida, and Las Vegas, Nevada into luxury five-star resorts with lavish amenities, and operating a rental pool of units in these projects for profits.”
According to the filing, Mr. Clark was Cay Clubs’ co-founder, president and CEO, while Ms Coleman was a managing member and registered agent of certain affiliated entities. They were Florida residents from no later than July 2004 to at least January 2009.
“Cay Clubs was not the successful business Clark, Coleman, [Barry J.] Graham, and [Ricky Lynn] Stokes claimed it was. By April 2005, in Ponzi scheme fashion, Clark and [David W.] Schwarz, Cay Clubs’ CFO, started using new investor funds to pay leaseback returns to earlier investors,” according to the filing.
“Cay Clubs did not pay the guaranteed leaseback returns to all investors and beginning in mid-2006, failed to pay them to the vast majority of investors,” according to the filing, which states that Cay Clubs collapsed in mid-2008.
‘Cay Clubs concept’
The new filing contains additional information, including a chart of about 100 Cay Clubs entities. It also includes sections on the different aspects of “the Cay Clubs concept”, as the SEC attempts to build a case that Cay Clubs was sold as a multifaceted investment scheme, going beyond simple real estate transactions.
“The Cay Clubs concept was not merely a fee simple investment in a condominium unit. Instead, Cay Clubs marketed a broader investment concept comprised of a unit bundled together with a package of commitments and services Cay Clubs claimed it would provide that, taken together, comprised a business in which the Defendants promised investors their entrepreneurship and management efforts would generate profits for investors,” according to the SEC filing.
Ken Hazouri of Orlando law firm De Beaubien, Knight, Simmons, Mantzaris and Neal LLP, who is legal counsel for Mr. Clark, Ms Coleman and Mr. Schwarz, said his clients absolutely refute the SEC’s allegations.
“My clients categorically deny, and intend to disprove, all allegations of wrongdoing in the SEC’s most recent complaint, which is the third one the SEC has now filed in an effort to state a valid claim,” Mr. Hazouri said via email.
“These are the bottom lines: a) Cay Clubs sold real estate, not securities and, therefore, the SEC has no jurisdiction over the matter; b) all persons who contracted to purchase a condominium from Cay Clubs received the units for which they bargained; c) neither Cay Clubs nor its representatives committed any fraud or other misconduct, as falsely alleged by the SEC or otherwise; and d) Cay Clubs failed for no reason other than historic collapses in the real estate and credit markets,” Mr. Hazouri said.
The SEC accuses Mr. Clark, Ms Coleman and Mr. Schwarz of having “misappropriated more than US$33 million either as exorbitant salaries and commissions or to fund personal expenses and business ventures”.
According to the SEC, about US$1.5 million in investor contributions was diverted to ventures such as gold mines, coal refining machinery and a rum distillery, and that Mr. Clark transferred some US$2 million into Bahamas and Cayman Islands accounts to fund personal business ventures in precious metals, rum distilling, pawn shops and payments to relatives. The SEC has alleged that in late April, Mr. Clark transferred nearly US$1.7 million from Cayman to Honduras through an HSBC New York account. “Until approximately late January 2013, Clark was co-chairman of the CMZ Group, Ltd., a Cayman Islands entity that includes a Caribbean pawn shop network and spirits business, among other ventures,” according to the new filing.
CMZ Group’s brands include CashWiz pawn shops and Argentum Refineries, a precious metals processor and bullion storage operation in Cayman Enterprise City. (CMZ Group also has a company called Best4Less, a wholesale distribution company based in the Turks and Caicos Islands that manufactures Pirates Choice rum.)
In early February, CMZ Group Ltd. SEZC chairman Keith Miles told the Compass that Mr. Clark had notified him 14 January of a pending civil action by the SEC. Accordingly, Mr. Miles and another co-chairman bought out Mr. Clark, and Mr. Clark’s relationships with the companies ended.