U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 22607 / January 30, 2013
Securities and Exchange Commission v. Barry J. Graham, Fred Davis Clark, Jr., a/k/a Dave Clark, Cristal R. Coleman, a/k/a Cristal Clark, David W. Schwarz, Ricky Lynn Stokes, Civil Action No. 4:13-cv-10011 (S.D. FL., filed January 30, 2013)
SEC Charges Five Former Executives of Cay Clubs Resorts and Marinas in $300 Million Real Estate Investment Fraud
The Securities and Exchange Commission today filed a civil fraud action in the United States District Court for the Southern District of Florida against five former executives of the defunct Florida-based companies known collectively as Cay Clubs Resorts and Marinas, for conducting an offering fraud and Ponzi scheme that raised more than $300 million from nearly 1,400 investors nationwide.
According to the SEC's complaint, from late 2004 through 2008, former Cay Clubs CEO and President Fred Davis Clark, Jr., former manager and sales agent Cristal R. Coleman, former Chief Accounting Officer David W. Schwarz and former Sales Directors Barry J. Graham and Ricky Lynn Stokes, conducted a multi-year scheme to defraud investors who purchased units at Cay Clubs' resort locations in Florida and Las Vegas, Nevada. Clark, Coleman, Graham and Stokes solicited investors directly and through a network of hundreds of sales agents touting the profitability of Cay Clubs' investments by promising investors immediate income from a guaranteed 15% return; instant equity in undervalued properties; historic appreciation; development of a network of luxury destination resorts at its nationwide locations; at least $30,000 of unit upgrades; and, a future income stream through the rental program Cay Clubs managed.
The SEC alleges that Cay Clubs, through Clark and Schwarz, used a web of entities and bank accounts to conceal a Ponzi scheme that commingled investors' funds and used new investor deposits to pay leaseback returns to earlier investors. Clark and the other executives paid themselves exorbitant salaries and commissions in excess of $30 million and failed to fulfill their promises. Additionally, Clark and Coleman misappropriated millions of dollars of investor funds to purchase airplanes, boats, and to pay for unrelated business ventures that included investments in precious metals and a liquor distillery that produced Pirate's Choice Rum.
The SEC further alleges that Cay Clubs' representations about investors' profitability and "instant equity" were false because the purported triple-digit returns were the result of undisclosed insider transactions among Cay Clubs and Coleman, Graham, and Stokes to make it appear that the units had enormous rates of appreciation over a short period of time when in fact the transactions were part of an insider flipping scheme. Cay Clubs continued to solicit new investors despite the fact that the company's financial condition had deteriorated so significantly that it did not have sufficient funds to make "guaranteed" leaseback or rental payments to investors. Clark and Coleman left the United States and now reside in the Cayman Islands.
The SEC's complaint alleges that Clark, Coleman, Graham, and Stokes violated Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934. Additionally, the SEC's complaint alleges that Graham and Stokes violated Section 15(a)(1) of the Exchange Act, and that Schwarz violated Section 17(a)(1) and 17(a)(3) of the Securities Act and Section 10(b) and Rule 10b-5(a) and (c) of the Exchange Act. The SEC complaint seeks from all defendants disgorgement of ill-gotten gains plus prejudgment interest, injunctive relief to enjoin them from future violations of the federal securities laws, an accounting, civil money penalties from Clark, Coleman and Stokes, and an order to repatriate assets.
The SEC's investigation was conducted in the Miami Regional Office by Linda S. Schmidt, Senior Counsel, and Fernando Torres, Senior Regional Accountant, under the supervision of Jason R. Berkowitz, Assistant Regional Director. Amie Riggle Berlin, Senior Trial Counsel, will lead the SEC's litigation.