Like most alleged Ponzi schemes, a Miami-based troika’s plan to tap South American investors to fund their real estate projects started off with non-criminal, ambitious intentions.
Ernesto Weisson, a Coconut Grove businessman and architect who spent time as a developer in his native Ecuador, teamed up with fellow Ecuadorian and financial manager Roberto Cortes to build a few luxury homes on Key Biscayne through traditional funding sources and construction loans in the early 2000s, according to legal filings in Miami-Dade Circuit Court.
By 2005, Weisson and Cortes brought in a third partner, an Argentine financier named Fernando Haberer, and expanded their horizons by purchasing 30 vacant lots at the Ocean Reef Club in Key Largo for potential development. They also had a deal to develop a prime piece of waterfront land in North Bay Village. The trio launched two companies, South Bay Holdings, the development arm of their nascent enterprise, and Biscayne Capital International, an entity that collected tens of millions of dollars from South American investors.
But it was more than the three partners could handle. According to a Sept. 1 U.S. Department of Justice criminal complaint, South Bay’s projects began suffering financial difficulties in 2007, which worsened over the next decade. Between 2007 and 2012, the company’s liabilities mushroomed from about $22.5 million to $130 million.
In the past three years, six separate lawsuits were filed in Miami-Dade Circuit Court against the three men, Biscayne Capital and South Bay Holdings. The suits allege that the men masterminded a Ponzi scheme that defrauded hundreds of investors.
In the end, the trio’s plans turned into an allegedly fraudulent catastrophe, with prosecutors saying investors lost $155 million, and the trio facing the rest of their lives behind bars. The civil complaints claim Weisson, Haberer and Cortes raised a lot more money, estimating they received between $250 million and $350 million over more than a decade.
Civil and criminal attorneys representing Weisson, Haberer and Cortes did not respond to multiple requests for comment.
According to the criminal complaint, as South Bay’s finances worsened due to a lack of profits from their floundering real estate projects, Biscayne Capital became increasingly unable to pay back investors. So the trio increasingly relied on getting more money from new investors and used the new funds to repay previous investors, misleading them into believing that their funds were safe and generating returns, the complaint states. In other words, the troika implemented a Ponzi scheme to keep their cratering real estate business afloat, prosecutors allege.
Michael Pearson, a liquidator charged with clawing back funds from Weisson, Haberer, Cortes and other co-conspirators on behalf of Latin American pension funds, told The Real Deal that the trio used a vast network of broker dealers in Central and South American countries who convinced investors looking for safe havens that the real estate projects were viable and secure. Pearson and his team of liquidators are plaintiffs in a lawsuit against Weisson, Haberer and other alleged co-conspirators filed earlier this year.
“It makes Bernie Madoff look like a one-trick pony,” Pearson said, referring to the biggest convicted Ponzi schemer ever. “It was a cesspit of fraud. They refined the scheme over different reiterations. They would find a pool of investors, sign them up, rip them off and move on. Eventually, it became too much like all Ponzi schemes.”
Here’s how the scheme worked
To secure the trust of their investors, Weisson, Cortes and Haberer allegedly issued promissory notes for nonexistent real estate projects by South Bay Holdings, according to the civil lawsuits. The notes were issued as securities by Biscayne Capital International subsidiaries operating in the Cayman Islands, Virgin Islands and several South American countries, including Ecuador, Venezuela, Argentina and Brazil, according to the civil lawsuits. In reality, the notes were worthless, the plaintiffs allege.
The trio allegedly never recorded the notes, and the first mortgage lender was a hard lender affiliated with Weisson and Cortes. That gave the duo priority over their investors and deprived investors of any rights to the projects, the lawsuits allege. They ran their scheme from a two-story historic house at 1548 Brickell Avenue that was converted into an office building. Weisson owned the property from 1998 until 2019, when he sold it for $3.8 million, records show.
During a March 26 court hearing for one of the civil cases, John Arrastia, a Miami lawyer representing 162 investors, explained that the trio relied on intermediaries in South American countries to make sales pitches to his clients, the investors. Arrastia did not respond to phone and email messages seeking comment.
“These individuals would go and solicit clients, high net worth and ultra-high net worth [investors] in Latin America,” Arrastia said at the hearing. “Typically, they’re being solicited at a party [or] a business function. There are a couple of random examples where an investor had come to Florida and looked at the projects here, and there were tours.”
Among the victims were relatives of Haberer. He allegedly tapped funds from his brothers in-laws, a 2018 lawsuit alleges. “He developed a relationship of trust and confidence with the family members through dishonest means, and for dishonest purposes took control of the investment accounts held for the benefit of the family members,” the complaint states. “He deceived plaintiffs about how he was directing their investments, including by misrepresenting the nature of the investments and creating falsified spreadsheets and account statements.”
By 2016, the U.S. Securities and Exchange Commission caught up to the principals of South Bay Holdings and Biscayne Capital International. According to an SEC order, Biscayne Capital had failed to disclose multiple conflicts of interest and other material information to its clients, including South Bay’s dire financial condition and failure to generate enough revenue and operating cash flows.
The SEC censured Biscayne Capital, Weisson, Cortes and Haberer and barred them from an investment advisory business for three years. They also paid $500,000 in fines as part of a settlement with the SEC.
Instead of stopping their scheme, Weisson, Haberer and Cortes found ways to circumvent the order, the lawsuits allege. They continued to raise capital from Latin American investors and managed to hide their involvement from securities regulators, the suits claim.
“They were pretty adept, and there were multiple iterations of this fraud,” Pearson, the liquidator, said. “The investors would receive fraudulent documents showing that their investments were performing well. All of it was complete fiction.”
Department of Justice steps in
In early September, a New York grand jury indicted Weisson, Haberer and Cortes, charging them with conspiracy to commit wire fraud conspiracy to commit bank fraud, and conspiracy to commit money laundering. If convicted of all counts, each defendant would face a maximum penalty of 70 years in prison.
The U.S. Justice Department and New York federal prosecutors allege the trio’s scheme collapsed in 2018, resulting in more than $155 million in losses to investors.
Pearson said the indictments could help persuade unindicted co-conspirators who received ill-gotten funds from South Bay, Biscayne Capital and related entities to cooperate in repaying any monies back. “These indictments are starting to hit home with a lot of potential targets,” Pearson said. “If you are someone who assisted [the scheme], you will want to get out of it as fast as you can.”
Still, he expects it will take several years to recoup some of the financial losses investors suffered. “We have been successful in using forensic cash tracing software in building a picture of where the money went,” Pearson said. “But we are picking up a cold trail on money that was misappropriated, in some cases as far back as 10 years ago.”
Meanwhile, the ultimate victims he represents are working class people in such countries as Argentina, Ecuador, Uruguay and Venezuela who are the beneficiaries of pension funds that invested in Biscayne Capital International.
“This is not a scam where a big bank or a big investment firm got ripped off,” Pearson said. “This scammed hundreds of retirees. Quite a few of them that we spoke to can’t retire, or they’ve had to go back to work.”