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Saturday
Dec122015

Cay Clubs Founder Convicted After Retrial

Less than four months after a Florida jury deadlocked on charges that a Florida man operated a $300 million Ponzi scheme, a second jury returned a guilty verdict on three counts of bank fraud, three counts of making false statements to a financial institution, and obstruction of an official investigation.  Fred Davis Clark, aka Dave Clark, was convicted for his role as CEO of Cay Clubs, which authorities have alleged was a massive $300 million Ponzi scheme disguised as a timeshare leasing venture that defrauded hundreds of investors.  An August 2015 trial resulted in a mistrial for Clark - and a acquittal of Clark's wife, Cristal Clark, of all charges. Authorities quickly announced their intention to retry Clark and handed down a superseding indictment outlining a slightly different theory.  Clark could face dozens of years in prison when sentenced February 25, 2016.

The Scheme

Cay Clubs operated from 2004 to 2008, marketing the offering and sale of interests in luxury resorts to be developed nationwide.  Fred Clark served as Cay Clubs' chief executive officer, while Cristal Clark was a managing member and served as the company's registered agent.  Through the purported purchase of dilapidated luxury resorts and the subsequent conversion into luxury resorts, Cay Clubs promised investors a steady income stream that included an upfront "leaseback" payment of 15% To 20%.  In total, the company was able to raise over $300 million from approximately 1,400 investors.

However, by 2006 the company was alleged to have lacked sufficient funds to carry through on the promises made to investors.  Instead of using funds to develop and refurbish the resorts, Cay Clubs allegedly used incoming investor funds to pay "leaseback" payments to existing investors in what authorities alleged was a classic example of a Ponzi scheme.  After an investigation that spanned several years, the Securities and Exchange Commission initiated a civil enforcement action in January 2013 against Cay Clubs and five of its executives, alleging that the company was nothing more than a giant Ponzi scheme.  However, the litigation came to an abrupt end in May 2014 when a Miami federal judge agreed with the accused defendants that the Commission had waited too long to bring charges and dismissed the case on statute of limitations grounds.  

Original Trial

Just weeks after the dismissal of the Commission's action, authorities unveiled criminal charges against Fred and Cristal Clark and coordinated their arrest and extradition from Honduras and Panama where they had previously been living.  The charges stemmed from the Clarks' operation of an unrelated scheme to siphon money from their operation of a series of pawn shops throughout the Caribbean. Authorities alleged that the pair used a series of bank accounts and shell companies previously used with Cay Clubs to steal funds from the pawn shops to sustain their lavish lifestyles abroad.  Several months later, authorities filed bank fraud charges related to the Clarks' interaction with lenders as part of their operation of Cay Clubs - a strategy seemingly designed to ensure the charges would withstand any statute of limitation challenges given that bank fraud carries a 10-year statute of limitations.  

A forensic analysis conducted by the government alleges that Cay Clubs evolved into a Ponzi scheme as early as April 2005, with $2 out of every $3 paid to investors allegedly coming from existing investors.  The forensic analysis also showed that the Clarks lived lavishly, including nearly $20 million in boat purchases and expenses, $5 million in aircraft expenses, and $3 million in personal credit card bills.  Fred Clark also allegedly spent over $3 million at a Bradenton golf and country club.

After a five-week trial earlier this summer, a federal jury deliberated for four days before acquitting Cristal Clark of all charges and deadlocking on the charges against Dave Clark. 

Superseding Indictment

Shortly after the mistrial, authorities handed down a superseding indictment that signaled a slight change in strategy.  While the previous indictment focused on the Clarks' alleged operation of a Ponzi scheme through Cay Clubs, the superseding indictment honed in on the insider transactions that were used to artificially inflate the unit prices and allegedly defraud the lending institutions.  The new indictment alleged that Clark would identify certain family members to act as "straw borrowers for loans that were used to purchase Cay Clubs units." These straw borrowers would prepare fraudulent loan applications, which included representations about the borrower's employment and income, designed to induce lenders to approve the extension of credit.  Clark and others also allegedly prepared fraudulent HUD-1 Statements in which they certified that the borrowers had made the required down payment and cash-to-close payments when, in reality, those payments were made by a Cay Clubs entity controlled by Dave Clark.  

The retrial began November 9th and lasted four weeks.  

The arrest likely marks the end of a circuitous civil and criminal prosecution of Cay Clubs and its former associates, as former Cay Clubs sales agents Ricky Lynn Stokes and Barry Graham were previously sentenced to a five-year term after entering into plea agreements with prosecutors.  Former Cay Clubs attorneys Scott Callahan and Charles Phoenix previously entered into immunity agreements in which they admitted to concealing information about Cay Clubs from lenders and agreed to provide assistance and testimony. 

A copy of the Superseding Indictment is below:

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