U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20697 / August 29, 2008
Securities and Exchange Commission v. Steven Byers, Joseph Shereshevsky, Wextrust Capital, LLC, Wextrust Equity Partners, LLC, Wextrust Development Group, LLC, Wextrust Securities, LLC and Axela Hospitality, LLC, and Elka Shereshevsky (Relief Defendant), 08 Civ. 07104 (DC) (S.D.N.Y.)
SEC Amends Complaint to Add Defendant Joseph Shereshevsky's Wife as Relief Defendant and Obtains Asset Freeze Over More Than $900 Thousand In Assets Transferred to Her
The United States Securities and Exchange Commission yesterday amended its Complaint against Wextrust Capital, LLC (Wextrust), its principals, and four affiliated Wextrust entities, to add defendant Joseph Shereshevsky's wife, Elka Shereshevsky, as a relief defendant, alleging that Joseph Shereshevsky attempted to hide more than $900 thousand in investor funds by placing them in accounts putatively in her name. The amended complaint also adds broker-dealer fraud charges against defendant Steven Byers. The Commission's original complaint alleged that defendants conducted a massive Ponzi-type scheme from 2005 or earlier that raised approximately $255 million from approximately 1,200 investors. The targets of the fraudulent offerings are primarily members of the Orthodox Jewish community. Simultaneously with the filing of the original action, the Commission sought and obtained emergency relief from the Court to freeze the defendants' assets, place the Wextrust entities under the control of a receiver to safeguard assets and issue a temporary restraining order to stop the ongoing offerings and orders granting other immediate relief. With the filing of the amended complaint, the Commission sought and obtained a temporary order freezing the assets of the relief defendant, Elka Shereshevsky.
The Commission's original complaint, filed in federal court in Manhattan on August 11, 2008, charged that Wextrust, its principals Steven Byers and Joseph Shereshevsky, and its affiliated entities Wextrust Equity Partners, LLC (WEP), Wextrust Development Group, LLC (WDG), Wextrust Securities, LLC (Wextrust Securities) and Axela Hospitality, LLC (Axela) conducted at least 60 securities offerings through private placements and created approximately 150 entities in the form of limited liability companies or similar vehicles to act as issuers or facilitators of the offerings, purportedly to fund the acquisition of specified assets, the majority of which were commercial real estate ventures. Contrary to representations in the offering memoranda that proceeds would be used for specific projects, the defendants allegedly diverted funds to pay returns to investors in prior offerings, or to fund expenses of the defendants. Overall, the complaint alleged that defendants diverted at least $100 million dollars to unauthorized purposes and that defendants are conducting at least four ongoing offering frauds intended to raise money to pay back investors from prior offerings. In addition to the emergency relief sought when filed, the Commission's original complaint seeks disgorgement of the defendants' ill-gotten gains, civil penalties, and permanent injunctions barring future violations of the antifraud and other provisions of the federal securities laws.
The Amended Complaint alleges that defendant Joseph Shereshevsky routinely placed his own assets - residential real estate, bank accounts, and a share in the ownership of Wextrust - in his wife's name. The Amended Complaint further alleges that Elka Shereshevsky had a "no show" job at Wextrust and received improper transaction-based compensation and bonuses for sales of securities her husband made through Wextrust Securities while he was not registered as an associated person with it. Although Elka Shereshevsky purportedly holds twenty percent ownership of Wextrust Securities as General Partner of the Shereshevsky Family Partnership, the Amended Complaint alleges that defendant Joseph Shereshevsky controls that interest.
The Amended Complaint further alleges that in early August 2008, when numerous Wextrust accounts had been frozen, defendant Joseph Shereshevsky directed his wife to open an account with a bank in Norfolk, Virginia, into which he diverted at least $75,000 of his own or Wextrust investment vehicle assets. In addition, the court-appointed receiver in this matter has identified other accounts putatively controlled by Elka Shereshevsky that contain more than $825,000 of her husband's or the Wextrust Defendants' assets. One wire transfer report showing a $100,000 transfer into such an account states, "per Joe's phone call," indicating Shereshevsky directed the transfer.
The Amended Complaint further alleges that defendant Byers violated Section 15(a) by effecting securities transactions while he was not registered as, or associated with, a broker-dealer. The Amended Complaint alleges that defendants violated and are violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Wextrust Securities violated Sections 15(b)(1), 15(b)(7) and 15(c)(1) of the Exchange Act and Rules 10b-3, 15b1-1, 15b3-1 and 15b7-1 promulgated thereunder. Shereshevsky and Byers violated Section 15(a) or alternatively, aided and abetted, Wextrust Securities' violations of Sections 15(b)(1), 15(b)(7) and 15(c)(1) of the Exchange Act and Rules 10b-3, 15b1-1, 15b3-1 and 15b7-1 promulgated thereunder.
The Commission acknowledges the assistance of the United States Attorney for the Southern District of New York and the Federal Bureau of Investigation in connection with this matter.