U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20678 / August 11, 2008
Securities and Exchange Commission v. Steven Byers, Joseph Shereshevsky (a/k/a Joseph Heller and "Josie"), Wextrust Capital, LLC, Wextrust Equity Partners, LLC, Wextrust Development Group, LLC, Wextrust Securities, LLC and Axela Hospitality, LLC, 08 Civ. 07104 (SWK) (S.D.N.Y.)
SEC Charges Defendants in $255 Million Ponzi-Type Scheme Involving Wextrust Capital, LLC and Other Wextrust Entities
The United States Securities and Exchange Commission today filed charges against Wextrust Capital, LLC (Wextrust), its principals, and four affiliated Wextrust entities, alleging 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 action, the Commission is seeking emergency relief from the Court to freeze the defendants' assets and place the Wextrust entities under the control of a receiver to safeguard assets. The Commission is also seeking a temporary restraining order to stop the ongoing offerings and other immediate relief.
The Commission's complaint, filed in federal court in Manhattan, charges 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.
In one offering, conducted in 2005, the SEC complaint alleges that defendants falsely represented to investors that the more than $9 million raised would be used to purchase seven specifically identified real estate properties that were leased by federal government agencies, such as the General Services Administration. In fact, according to the complaint, the defendants never purchased the seven properties. Moreover, at the time the offering occurred, they knew or were reckless in not knowing that the seven properties would not be acquired. Significantly, while the offering was ongoing, the Wextrust entities "borrowed" more than $6 million from the funds raised in the GSA offering and used these funds for purposes unrelated to the GSA offering.
Overall, the complaint alleges, defendants diverted at least $100 million dollars to unauthorized purposes. The complaint alleges that the 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 today, the Commission's 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 complaint names the following defendants.
The 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 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. Byers 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.
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.