A Cuban-American and former prominent businessman pled guilty Wednesday to operating a real estate Ponzi scheme that took in $135 million from hundreds of victims. Gaston E. Cantens, 73, pled guilty as part of a plea agreement with prosecutors that allowed him to plead guilty to a single count of conspiracy, which carries a maximum prison sentence of five years. Cantens was originally charged in a criminal information with one count of conspiracy to commit mail and wire fraud. The use of a criminal information as a charging document was a sign that a plea agreement was likely in the works. Many victims expressed outrage at the leniency of the sentence, which pales in comparison to recent sentences for Ponzi schemers who stole similar amounts. Additionally, the bankruptcy of Cantens' business yielded a return to investors that amounted to pennies on the dollar, with little chance of future recoveries.
Cantens operated Royal West Properties ("Royal West"), which held itself out as a successful real estate investing firm. Beginning in 1993, Royal West sold sold real estate investments as a way to finance its real estate and mortgage business, promising returns to investors as high as 16%. These investments were purportedly secured by mortgages on real estate projects operated by Royal West. To gain the trust of potential investors, Canten and his wife Teresita appealed to fellow members of South Florida's Cuban exile community and insinuated that well-known members of the Cuban-American community had invested in Royal West. Over sixteen years, Royal West raised more than $135 million from more than 400 investors.
However, in reality, Royal West was not the profitable company it held itself out to be. Instead, Royal West began operating at a loss beginning in 2002, especially in light of a rising default among purchasers whom it had entered into purchase money mortgages with. By 2006, the company was incurring monthly shortfalls of up to $600,000 per month. In order to perpetuate the image of a successful company, Royal West began using funds from new investors to pay returns of principal and interest to existing investors, a classic hallmark of a Ponzi scheme. Royal West continued to conceal its deteriorating financial position from new investors, and raised $63 million from August 2006 to January 2009 alone.
The company began to encounter liquidity problems in 2008, and by February 2009 had informed investors that it was ceasing interest payments due to economic conditions. A group of investors later forced the company into bankruptcy in May 2009. The trustee appointed to oversee the bankruptcy discovered that the company had operated as a Ponzi scheme since 2002, and found that despite the $135 million raised from investors, very little remained for investors. Indeed, only $4.3 million in assets was recovered during the trustee's investigation, but only $1.3 million found its way into investor's hands after attorneys' fees, distributions to the IRS, and property tax collectors. This resulted in an approximate distribution of 3% - 4% per investor. One of these investors, the Miami Heat basketball team, received a distribution of $2,700 on an investment of $88,800.
Sentencing has been scheduled for April 4, 2012. The Cantens were also charged by the Securities and Exchange Commission in March 2010 in a civil enforcement action that remains pending.
A copy of the SEC Complaint is here.