Legal News

Orthodox Jews Targeted in Alleged $255 Million Ponzi Scheme

By Dan Slater

The Feds have used a mole to bust open an alleged Ponzi scheme linked to the owners of a Chicago-based real-estate investment firm called WexTrust Capital. SDNY prosecutors allege that Steven Byers and Joseph Shereshevsky raised money in private placements for real estate investments. As they were charged with conspiracy to commit securities fraud, the SEC filed a suit alleging that Shereshevsky and Byers had raised $255 million from about 1,200 people, many of them Orthodox Jews, and misappropriated the money.

Here’s the SEC complaint, the WSJ story and here’s a report from the Chicago Trib, which says it could not reach Byers, Shereshevsky or their lawyers for comment. The WexTrust Web site is no longer functional.

“Our complaint alleges an affinity fraud of very large scale,” said Andrew Calamari, associate director of enforcement for the SEC. “In this case, one of the defendants used his extensive connections in the Orthodox Jewish community to solicit more than $250 million from unsuspecting investors.” In affinity fraud, the Trib explains, scammers target individuals with a common interest or belief, which may include a religious affiliation, to exploit their trust to obtain money.

A confidential informant within WexTrust reportedly told federal investigators that when the investors became suspicious, Byers told him to “blame it on the lawyer, blame it on something.” On another occasion, the informant said, he was instructed by Byers on how to deal with inquisitive investors: “When people call you … all you have got to say is … ‘look, I wasn’t there, I wasn’t part of it, I don’t know for sure.’”

According to court filings, the two suspects were raising money from new investors to pay a return to earlier investors. In one instance, federal prosecutors said, Byers and Shereshevsky raised millions of dollars to buy a hotel in Phoenix, diverting much of the money to fund WexTrust. WexTrust also was involved with diamond mines in South Africa and Namibia, according to SEC documents.

Full post as published by Law Blog - WSJ.com on August 12, 2008 (boomark / email).