The US financial industry regulator has accused five people, including two Cayman Islands residents, of running a Ponzi scheme that raised more than US$300 million from some 1,400 investors between 2004 and 2008.
A US Securities and Exchange Commission complaint filed 30 January in US District Court names Fred Davis Clark (AKA Dave Clark), 54, of Grand Cayman and wife Cristal R Coleman, 39, along with three other defendants who reside in Florida, as former directors of Cay Clubs Resorts and Marinas.
While the civil filing identifies Mr. Clark as currently being involved in the Cayman Islands-based CMZ Group of companies, on Friday group chairman Keith Miles said Mr. Clark’s association with the group was recently severed as a result of the anticipated court filing.
According to a news release, the commission “charged five former real estate executives who defrauded investors into believing they were funding the development of five-star destination resorts in Florida and Las Vegas when they were actually buying into a Ponzi scheme”.
According to the filing, Mr. Clark was Cay Clubs’ co-founder, president and CEO, while Ms Coleman was a managing member and registered agent of certain affiliated entities. They were Florida residents from no later than July 2004 to at least January 2009, according to the filing.
The commission alleges that the executives promised investors guaranteed returns of 15 per cent and future income through a rental program managed by Cay Clubs.
“But instead of using investor funds to develop resort properties and units, the Cay Clubs executives used new investor deposits to pay leaseback returns to earlier investors. Meanwhile, they paid themselves exorbitant salaries and commissions totaling more than US$30 million, and investor funds also were misused to buy airplanes and boats. While still advertising itself as a profitable venture, Cay Clubs eventually abandoned its operations. Many investors’ properties went into foreclosure,” according to the commission.
The commission alleges that US$1.5 million was diverted to “unrelated ventures, including gold mines, coal refining machinery, and a rum distillery”, and that Mr. Clark “transferred approximately US$2 million to accounts in the Bahamas and Cayman Islands to fund personal business ventures in precious metals, rum distilling, pawn shops, and further payments to his relatives.”
Mr. Miles, the chairman of CMZ Group Ltd. SEZC, said Mr. Clark was a shareholder but is no longer involved with the companies. Mr. Miles and one of his co-directors decided to buy out Mr. Clark after he notified them of the pending civil action.
“The deal was consummated earlier this week actually,” Mr. Miles said.
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