Over seven years after the collapse of a Florida real estate investment company that took in more than $300 million from thousands of investors, a federal judge sentenced the company's founder to a 40-year prison term. Fred Davis Clark, aka Dave Clark, received the sentence from U.S. District Judge Jose E. Martinez two months after a federal jury convicted Clark on multiple charges stemming from his tenure over Cay Clubs Resorts and Marinas, including three counts of bank fraud, three counts of making false statements to a financial institution, and obstruction of an official investigation. Clark was convicted of the charges during a December 2015 trial after a previous trial resulted in a mistrial for clark and an acquittal for his wife, Cristal Coleman. In addition to the sentence, Judge Martinez also ordered Clark to forfeit over $300 million.
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 alleged 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 onthe 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.
Post Trial Efforts
Clark made several post-trial attempts to overturn his conviction or secure a new trial, arguing among other things that prosecutors failed to prove their case, that the jury ruled on insufficient evidence, and his conviction was based on presumptions. Clark's motion for a new trial was denied earlier this month without accompanying explanation. Clark also sought to have Judge Martinez recused for exhibiting bias during the trial, as purportedly evidenced by excerpts from the trial transcript. The US opposed Clark's motion for recusal, observing that:
Defendant was extremely manipulative, non-responsive, and obstructive during his trial testimony. During his direct examination he refused to answer the questions of his own lawyer and instead continuously provided long, narrative and rambling statements...The court had to direct him on multiple occasions to answer the questions asked.
Judge Martinez denied the recusal motion on February 10th.
A New York man has been arrested and charged with taking in more than $12 million from investors who believed they were investing in a profitable wholesale liquor business. Hamlet Peralta, 36, currently faces a single charge of wire fraud, which carries a maximum sentence of twenty years in prison. The case against Peralta, who previously owned a New York restaurant, was brought by the Public Corruption Unit of the U.S. Attorney's Office for the Southern District of New York. The Wall Street Journal is reporting that the case is part of a larger ongoing corruption probe involving other New York businessmen.