Robert Shapiro is not alone: 5 real estate Ponzi schemes you should know about

Prosecutions of such frauds are up 50% over the last decade

TRD NATIONAL /
Nov.November 28, 2019 02:00 PM
Clockwise from top: Robert Shapiro, Viktor Gjonaj, and Robert C. Morgan (Credit: Rochester Institute of Technology, LinkedIn, iStock)

Clockwise from top: Robert Shapiro, Viktor Gjonaj, and Robert C. Morgan (Credit: Rochester Institute of Technology, LinkedIn, iStock)

On October 15, developer Robert Shapiro—who pleaded guilty in August for leading a $1.3 billion real estate Ponzi scheme—received the maximum sentence of 25 years in prison. Drawn out over two years, the court case laid bare how his now-defunct Sherman Oaks-based investment firm, the Woodbridge Group of Companies, defrauded more than 7,000 investors, among them many elderly retirees and ABC News anchor George Stephanopoulos.

Certain elements of Shapiro’s flagrant self-enrichment scam may be especially standout—he stole somewhere between $25 million and $95 million and spent at least some of the money on expensive wine and Picasso works—his fraudulent behavior is hardly an outlier within the industry. In the decade since Bernie Madoff first made headlines, Ponzi schemes have proliferated: The SEC has prosecuted 50 percent more of these cases in the last 10 years, many of which are tangled up with real estate. In fact, the Woodbridge scam isn’t even the only one that made headlines this year. Check out these five other examples from 2019 alone.

 

1.) Back in May, the SEC charged upstate New York residential and commercial real estate developer Robert C. Morgan and two of his business operations with fraud for siphoning and misusing investor funds. According to the complaint, Morgan—whose company, Morgan Management, at the time included 140 properties and 34,000 units across 14 states—raised more than $110 million from 200 mostly small investors starting in 2013, funds he claimed that would be used to improve multi-family properties while, in reality, were diverted to pay back earlier investors, prosecutors said. The SEC called his alleged scheme “Ponzi-like,” according to the Buffalo News.

The SEC also alleged that Morgan had directed more than $11 million to repay an inflated, fraudulently-obtained loan for an unrelated apartment complex, while additional charges filed by the Justice Department accused him of conspiracy to commit bank fraud, wire fraud, and money laundering. In the months since the indictments, Morgan has shed properties, most recently selling about half his portfolio to Pennsylvania-based company called Morgan Properties, which is reportedly separate and unrelated to his own entities. Morgan has denied the charges and claims the investors have already been repaid.

 

2.) In August, Carl Chen, the owner of Delaware-based real estate company Chenmex, was sentenced to 51 months in prison after pleading guilty to fraud in relation to a multi-year Ponzi scheme. Between 1991 and 2017, Chen collected a total of $6.4 million from 41 investors according to court documents that also revealed that he “generally promised investors annual returns of 10 to 15 percent and signed a promissory note guaranteeing each investor interest-only payments on a monthly basis until such time as he paid back the investor his or her full principal investment.”

In 2013, Chen’s holdings could no longer float the interest payments to investors and the scam began to cave in. In 2016, as investors began to demand their money back, Chen offered a mortgage on his own home in exchange for an investor not demanding immediate repayment; the following year, he filed for Chapter 7 bankruptcy, seeking to discharge the $6.7 million lent to him by investors. The judge who sentenced Chen this summer called the case “one of the most horrendous white-collar offenses that I remember seeing.”

 

3.) This Ponzi scheme has a mystery element: Detroit commercial real estate developer Viktor Gjonaj disappeared this summer in the wake of multiple mounting lawsuits—one of which alleged that he stole from investors, including his wife, in a multi-million dollar pyramid scheme. Gjonaj was accused of doctoring purchase agreements in order to make investors believe they were buying ownership interests in properties in Southeast Michigan that were actually already owned by the investors.

There was a web of more than 30 companies “all designed for the sole purpose of defrauding investors and keeping the money hidden,” according to court documents cited by Crain’s Detroit Business. Gjonaj’s business partner, Gregory Vitto, was initially named in one suit, but has since been dismissed. He claims he was merely another victim: “I was used just like the rest of the people,” Vitto wrote in in text message to Crain’s. “He owes me a ton of money also.” As of mid-September, Gjonaj had been heard from but remained out of sight.

 

4.) In September, the SEC charged Chicago property developer Glenn C. Mueller and his companies with violating federal securities laws, alleging that his “fix-and-flip” real estate investment pitch was in actuality a $41 million Ponzi scheme. Mueller is accused of defrauding more than 300 investors over the past five years, many of whom were retirement age, claiming that their money would be used to buy and renovate apartment buildings across the state when actually Mueller used the money from new investors to pay off existing others. While the SEC appointed a federal equity receiver to take control of Mueller’s businesses and marshal assets to benefit his victims, it remains unclear if they will all get their money back: While his main company, Northridge Holdings, is estimated to be worth $100.4 million, liabilities exceed $113 million.

 

5.) Meanwhile, in Utah, former real estate investment guru Rick Koerber was convicted on 15 charges of fraud, wire fraud, and money laundering following 10 messy years of litigation by federal prosecutors. He was ultimately sentenced to over 14 years in prison. Koerber collected more than $100 million in investments from family and friends between 2004 and 2008, claiming the money would be used to purchase real estate but instead using the funds to support a lavish lifestyle as well as a hamburger franchise and a sexy horror film production. He was also accused of using money from new investors to pay previous investors in order to keep up the scam.

The Koerber case has been particularly contentious for the way he exploited fellow followers of the Church of Latter Day Saints. “He knew exactly what to say and do to get members of the Mormon community to trust him. He spoke their language,” federal prosecutor Tyler Murray said during the trial. Prosecutors pushed for a 20-year prison term; ultimately, Koerber was sentenced to 14 years and change. It is estimated his investors lost a total of $45.2 million.


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