Cayman residents accused of US$300M Ponzi scheme

The regulator of the United States’ financial industry 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 the years 2004 and 2008. 

A US Securities and Exchange Commission complaint filed 30 January in a US federal 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 filing identifies Mr. Clark as being involved in a Cayman Islands-based group of companies, on Friday the group chairman told the Caymanian Compass that Mr. Clark’s association with the group was recently severed as a result of the anticipated charges.  

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’ cofounder, 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. 

 

Allegations 

The commission alleges that the executives promised investors guaranteed returns of 15 per cent and future income through a rental programme 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 totalling 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. 

“These Cay Clubs executives lined their pockets with millions of dollars that they told investors would be used to develop five-star resort properties,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “They continued to defraud investors as Cay Clubs collapsed.”  

According to the filing, the commission alleges that about US$1.5 million in investor contributions 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”. 

The filing identifies Mr. Clark as “co-chairman of the CMZ Group, Ltd., a Cayman Islands entity that includes a Caribbean pawn shop network and spirits business, among other ventures”. 

CMZ Group’s brands include CashWiz pawn shops, and Argentum Refineries, a precious metals processor and bullion storage operation in Cayman Enterprise City. (CMZ Group also has a company called “Best4Less”, a wholesale distribution company based in Turks and Caicos Islands that manufactures Pirates Choice rum.) 

 

‘Dave has resigned’ 

Mr. Clark is no longer associated with the group or its companies, CMZ Group Ltd. SEZC chairman Keith Miles said. 

Mr. Miles said, “Dave Clark was a shareholder. Dave came to me 14 January of this year and told me that he had the possibility of a civil action by the SEC, which was the first I’d heard of it. 

“I took legal advice, and in discussions between my lawyer and with Dave, I decided that Dave could not continue as an officer or a shareholder of CMZ Group, and I worked on a buyout, which we accomplished, and Dave has resigned from all of the boards associated with CMZ Group and the CMZ Group companies, including Argentum.” In short, Mr. Miles and one of his co-directors bought Mr. Clark out. 

“The deal was consummated earlier this week actually,” Mr. Miles said. 

He said the CMZ Group is a good business with nearly 150 employees around the Caribbean. He noted that the recent allegations date back a few years before he met Mr. Clark. 

“Dave Clark’s personal issues are just that – Dave’s personal issues,” Mr. Miles said. 

The Compass has been unable to find contact information for Mr. Clark or Ms Coleman. 

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