Federal agents arrested David W. Schwarz, the former CFO of Cay Clubs Resorts and Marinas, a defunct firm that operated from Key Largo, among other locations, and falsely claimed it was developing luxury resort developments in the Florida Keys and elsewhere.
The Daily Business Review reported that agents arrested Schwarz in Orlando on Thursday after federal prosecutors charged him with three counts of bank fraud, three counts of making false statements to a financial institution, conspiracy to commit bank fraud, and interference with the Internal Revenue Service’s administration.
According to an indictment filed Tuesday in the Southern District Court of Florida, Schwarz and Fred “Dave” Clark, the former president of Cay Clubs, schemed to “unlawfully enrich themselves by misleading and defrauding lending institutions.”
Schwarz and Clark are accused of bilking more than $300 million from 1,400 investors who paid Cay Clubs for units at luxury resorts that purportedly were in development but were never built.
Clark already has been convicted of bank fraud and making a false statement to a lender. He got a 40-year prison sentence in February.
Prosecutors charged Schwarz as an important operative in what they called a Ponzi scheme that he and Clark ran via Cay Clubs from 2004 to 2008.
Starting in 2004, Schwarz and Clark closed multiple pre-construction sales of Cay Clubs condo units to insiders, including family members of Schwarz and Clark, and falsifying applications for mortgage loans on the units. The sales to insiders encouraged outside investors to buy Cay Clubs condos that never were built as promised.
Prosecutors also allege that Cay Clubs eventually started to pay off existing investors with money from new investors after sales volume started slumping in 2006.
Schwarz and Clark personally collected more than $28 million between them before Cay Clubs went out of business in 2008.
According to the indictment, Schwarz under-reported his income by millions of dollars in false tax returns for 2004, 2005 and 2006.
If convicted, he potentially faces 30 years in prison for each of the conspiracy and bank fraud charges and another three years for the tax charge. [Daily Business Review] – Mike Seemuth