The United States Securities and Exchange Commission today filed charges against Wextrust Capital, LLC (Wextrust), its principals, and four affiliated Wextrust entities, alleging that defendants conducted a massive Ponzi-type scheme from 2005 or earlier that raised approximately $255 million from approximately 1,200 investors. The targets of the fraudulent offerings are primarily members of the Orthodox Jewish community. Simultaneous with the filing of the action, the Commission is seeking emergency relief from the Court to freeze the defendants’ assets and place the Wextrust entities under the control of a receiver to safeguard assets. The Commission is also seeking a temporary restraining order to stop the ongoing offerings and other immediate relief.
Scott Friestad, Deputy Director of Enforcement, said, “This case demonstrates that the Commission will aggressively seek out and pursue affinity frauds. It is also a signal to investors to be wary of friends touting great investment ‘opportunities.’ In this case, Wextrust purported to be ‘a globally diversified private equity and specialty finance company, specializing in investment opportunities ranging from real estate to specialty finance and investment banking.’ The reality, as alleged in our complaint, was very different.”
Andrew M. Calamari, Associate Director of Enforcement, added, “Our complaint alleges an affinity fraud of very large scale. 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. Affinity frauds are especially pernicious because the victims tend to let their guards down in circumstances where they might otherwise proceed with much more caution.”
The Commission’s complaint, filed in federal court in Manhattan, charges that Wextrust, and its affiliated entities Wextrust Equity Partners, LLC (WEP), Wextrust Development Group, LLC (WDG), Wextrust Securities, LLC (Wextrust Securities) and Axela Hospitality, LLC (Axela) conducted at least 60 securities offerings through private placements and created approximately 150 entities in the form of limited liability companies or similar vehicles to act as issuers or facilitators of the offerings, purportedly to fund the acquisition of specified assets, the majority of which were commercial real estate ventures. Contrary to representations in the offering memoranda that proceeds would be used for specific projects, the defendants allegedly diverted funds to pay returns to investors in prior offerings, or to fund expenses of the defendants.
In one offering, conducted in 2005, the SEC complaint alleges that defendants falsely represented to investors that the more than $9 million raised would be used to purchase seven specifically identified real estate properties that were leased by federal government agencies, such as the General Services Administration. In fact, according to the complaint, the defendants never purchased the seven properties. Moreover, at the time the offering occurred, they knew or were reckless in not knowing that the seven properties would not be acquired. Significantly, while the offering was ongoing, the Wextrust entities “borrowed” more than $6 million from the funds raised in the GSA offering and used these funds for purposes unrelated to the GSA offering.
Overall, the complaint alleges, defendants diverted at least $100 million dollars to unauthorized purposes. The complaint alleges that the defendants are conducting at least four ongoing offering frauds intended to raise money to pay back investors from prior offerings.
In addition to the emergency relief sought today, the Commission’s complaint seeks disgorgement of the defendants’ ill-gotten gains, civil penalties, and permanent injunctions barring future violations of the antifraud and other provisions of the federal securities laws.
(YWN Desk – NYC)
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22 Responses
Looked at the actual complaint. They seem to really have them. A lot of emails quoted indicating that they knew they were not behaving legally. Oy, have we got to have Moshiach. Meanwhile, I pray we should not commit any more Chillul Hashem.
Best memorial for Rabbi Eli Teitelbaum, who allways warned us againts losing money with these schemes.
#1 and #3. Thousands of Yidden have potentially lost their money and all you can do is point out that they are suckers. Wextrust was a audited company, that many seasoned investors did their best research on. It was not a “scheme” or too good to be true. They offered solid investments in real estate backed assets at above average returns. This is not a case of being being greedy or nieve. The least you can do is wish these unfortunate people well and hope that they recover some of their loses. So much for feeling another jews pain. Shame on you and shame on the guilty parties in this debacle.
I’m waiting for someone to scream “ANTI-SEMITISM” as usually happens when someone does something “un-Orthodox.”
Yes, Rabbi Eli Teitelbaum provided wise advise. But to describe it as his best memorial trivializes his profound accomplishments by equating them with the mundane.
As a heavy investor and as one who can lose alot of money in this fiasco,I would hesitate to pass judgement.If you bothe rto read the SEC complaint the alledged crime is that one deal was non exisitant.I know of many many deals that I personally verified as being accurate.The CEO is a goy and the former COO is a orthodox shomer shabbos.Just because the SEC says or alleges something does not mean in any way that this happened.This is not a chillul hashe.Also they did not guarentee outlandish returns.In the GSA deal the return was 6% per annum.WOW that is what Eli Titelbaum really meant.I suggest before speaking loshon hara on kllal yisroel we await the facts.I am known as a critic of Shereshevsky and I will say that the SEC complaint has alot of sheker in it.They imply ponzi scheme on 225 million yet allege one of 60 deals being fictituous for 9 million.The SEC is a headline grabbing institution that is more hurtful than helpful.I wont be suprised when that deal turns out to be okay.
If something sounds to good to be true it usually is to good to be true
I dont know any parties involved, and dont have a vested interest in keeping this story under wraps. That being said, correct me if I am wrong, but as far as I know, there is no heter to speak Lashon Harah where there is no Toeles. Assuming you care,[I dont care if you dont]what is the heter to publish this. What constructive purpose exists here. All assets have been frozen and the company legally [I am sure]can no longer solicit funds. If I am mistaken, please inform me.
remember
“something that is hard to believe,
is hard to believe”!
Hashem yirachaim aleinu, please.
#1 , jphone, by definition if they took money from people, no matter who, with theft in mind, they are ‘not ehrlicher yidden’.
I am very familiar with their deals. It was not a case of investor greed. Their deals and paperwork were done by the book. With professional law firms on both sides of the deal. The problem is you can invest in the most conserative, low-risk, low-return investment and still have this happen to you. This was outright theft. They used money from one single purpose entity created in one deal to fund another.
So for those who say that they were greedy investors, I ask you if your car is stolen or home is burglarized, does that make it your fault because you enticed someone else to steal it?!!!!
Looking back I think people underestimated the general risk of the character of the people they were dealing with while solely focusing on the risks/reward of the deal itself.
I wish mazal and bracha to all those who have lost money with them, I feel your pain.
Anyone dealing with unregulated “private equity” (as opposed to banks and mutual funds) should be rich enough to check out the deal in advance, otherwise they are out of their ballpark. One should remember that Ponzi thought he was making a profit, at least at first.
# 11 is bang on. However. If we (es chatoai ani mazkir) were truly concerned about lashon hora we would not visit this site at all or at the very least we would not read the comments which are usually nothing more than a lashon hora fest.
to number 17-you are 100% correct.i did not read the 37 page indictment before posting.i did read it afterwards and yes it stinks to high hell.and yes there is toeles in this because i recieved phone calls and initiated certain negotiations that will with the sec blessings salvage more than destroy.there are assetts there and how much is actually recoverable is the question .
as far as the GSA deal,I saw the paperwork unless they are claiming that it was forged,and they arent,the deal happened.yes it was via 3rd party entities and yes shereshevsky and byers werent licensed and the sec doesnt look kindly on that,co-mingling of funds is another no-no but between that and ponzi scheme and defrauding people 255 million i think is a stretch.we will have to wait to see how this unfolds.
i would like to remind you of a recent case in israel called cheftziba where the builder went bust and stole funds and hundreds of yungerliett thought they lost their apartments,as far as i know the tens of people who i am in contact with,nobody lost their apartments,they had to add 10 thousand dollars.lets hope this will be the same.meanwhile i think this is a great forum where tens of frum investors can get information.th eyentas who want to stam shmeeze i cant prevent.
btw,i have a friend who decided wextrust was risky so he parked 500k in a cd at indymac bank.get the point,this is a true story with a very greedy frum yid.and for all chachamim out there,do you know how much money orthodox jews lost in bear stearns?
moral of the story-give as much as you can to charity,that investment is assured of being returned,in this world or next.
ok,
lets try and get something positive out of this discussion (or at least clarification)
Those who have lost money or had money in this scheme, what are the Chances of the SEC retreiving such money and reimbursing people who have been scammed?
They obviously have assets, do these get sold off at auction?
Rabosai,
My former chavrusa in Eretz Yisroel called me one year ago to request aitzah on a Diamond Mine Investment Certificate with this WexTrust Company. He said the investment of $100,000 was guaranteed but he could not withdraw it for several years. He said the investment was to pay at least 100% at that time. He learns in Kollel with the broker. I told him that it certainly sounded like an impossible and fraudulent investment. I said that the broker was a rodef and if I was to be offered such an investment I would hit the saleman over the head with a patish for trying to destroy my family. I told him not to invest with this company. Unfortunately, he may not have taken my advice. I tried to reach him yesterday and there was no answer. Hashem Yirachem Alenu.
before investing read THE FOREWARNED INVESTOR and do your own research i made over 400% this month on ABK bought at 1.20 sold at 5.30
before investing read the forewarned investor and do your own research i made over 400% on abk this month bought at 1.20 sold at 5.30 there is real money out there for people willing to work
Rabbosi-i am sure it is mutar to hit your freind with a patish,and i appreciate your psak that he is a rodef.so now we can kill the broker,yasher koach for the heter.
obersteiny,
You should not try and tantalize people into investing in the stock market especially into such speculative name such as ABK. Telling people they can make 400% through hard work on a trade is bad. These are very speculative stocks who according to many analysts may go bankrupt. In fact they had already fallen over 90%. So to tell people they can make 400% and giving them such examples is pushing people to invest wildly and lose their money. I think hard work means finding a job and working hard. Not trying to make 400% on a stock.
#15 hit the nail onthe head.
Being extemelly familiar with all of the offerings at Wextrust, I can tell you most of them are not “too good to be true”. Aside from the diamond mines which by nature are extremely speculative and investors should know the risks of such ventures, they offered legitimate returns on well valued investments with reasonable business plans and revenue models. The key here was not the investments at hand but the people behind the investments. They got greedy and rather and suspend distributions on investments that did not have revenue for periods of time, they decided to comingle and take cash from other assets. They also took cash to keep their operations afloat fo payroll and other operating expenses and lived a very lavish lifestyle.
The bottom line is that when looking at an invesment always look at the character and integrity of the people in control and if something doesnt feel right it probably isnt. To say however all the investments did not make sense from the start is not logical as very sophisticated investors and very honest employees were deceived and it just shows that if someone wants to defraud you they will do it no matter how smart you think you are.
Regarding GSA all you have to do is check who owns the title to the properties and you will see it is not Wextrust or any afiliate of Wextrust and most of the properties have changed hands in the last year…just doesnt add up.