U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. March 29, 2006
SEC v. Cobalt Multifamily Investors I, LLC. Cobalt Multifamily Co. I, LLC, Cobalt Funding, LLC, Mark A. Shapiro, Irving J. Stitsky, and William B. Foster, Defendants, and Vail Mountain Trust, Relief Defendant, 06 Civ. 2360 (MBM) (S.D.N.Y.)
SEC Obtains Temporary Restraining Order, Asset Freezes and Other Emergency Relief to Halt Offering Fraud
On March 28, the Commission obtained an order temporarily restraining Cobalt Multifamily Investors I, LLC ("Cobalt Multifamily" or "the Company"), Cobalt Multifamily Co. I, LLC ("Cobalt Co."), Cobalt Funding, LLC ("Cobalt Funding"), Mark A. Shapiro, Irving J. Stitsky, and William B. Foster, from continuing to engage in a fraudulent unregistered offering of securities. Cobalt Multifamily is allegedly one of a network of affiliated companies (collectively, "Cobalt") controlled by Shapiro, a convicted felon. The court also froze the assets of the defendants and a relief defendant, Vail Mountain Trust ("Vail"), and appointed a temporary receiver for Cobalt Multifamily, Cobalt Co., Cobalt Funding, and Vail. Finally, the court ordered the defendants to promptly provide sworn accountings, ordered that discovery be accelerated and that defendants be prohibited from destroying documents, and ordered that a hearing be held on April 11 to determine if the interim relief should be continued.
Also, on March 27, United States Attorney's Office for the Southern District of New York filed criminal charges against Shapiro, Stitsky, and Foster.
The Commission's complaint, filed on March 27, alleges that since approximately July 2004, the Company has raised over $16 million from at least 150 investors on the basis of false and misleading offering and marketing materials and through boiler room sales tactics overseen by defendant Stitsky, another convicted felon and a multiple recidivist. According to the Complaint, the defendants: (a) misrepresented Cobalt=s track record and ongoing operations; (b) concealed Shapiro=s and Stitsky=s roles and criminal backgrounds and promoted the false impression that Foster runs the Cobalt; (c) misappropriated at least $2.6 million of investor funds; and (d) operated the Company as a Ponzi scheme, using funds of later investors to pay earlier investors a promised 8% annual return. The Complaint further alleges that the offering is ongoing -- Cobalt has continued to raise funds from investors, even after the execution of search warrants at its offices in December 2005, and has sought additional investments at least as recently as early March 2006.
The Commission's Complaint names the following individuals and entities:
- Cobalt Multifamily, a limited liability company with its principal place of business in Springfield, Massachusetts. The Company is purportedly engaged in the acquisition and development of multifamily properties throughout the United States, including the rehabilitation and conversion of such properties into condominium-hotels.
- Cobalt Co., the entity identified in offering materials as the "Manager" of Cobalt Multifamily.
- Cobalt Funding, Cobalt Multifamily's sales arm - the entity through which the Cobalt Multifamily securities are marketed and sold. Cobalt Funding maintains offices in Great Neck, New York, and Miami, Florida.
- Shapiro, age 47, a resident of Glastonbury, Connecticut. According to the Complaint, Shapiro controls all the Cobalt entities and owns them, personally or through Vail. Shapiro was previously convicted of bank fraud and conspiracy to commit tax fraud and sentenced to serve thirty months in prison. See United States v. Mark Shapiro, 98 CR 242 (D. Conn.) (DJS).
- Stitsky, age 51, a resident of Bayside, New York. Stitsky allegedly runs Cobalt Funding and is responsible for recruiting, training, and overseeing the sales force. Stitsky has an extensive criminal and disciplinary history. Among other sanctions, he has twice been barred by the Commission from associating with a broker or dealer. See Eric S. Blumen, Exchange Act Release No. 40333 (Aug. 18, 1998); Salvatore Piazza, Exchange Act Release No. 48497 (September 17, 2003). He has also been convicted of conspiracy to commit securities fraud, for which he was sentenced to twenty-one months imprisonment and a three-year period of supervised release in United States v. Dacunto, et al., 00 CR. 620 (S.D.N.Y.), and been the subject of at least two other Commission enforcement actions and two other criminal actions, including one currently pending against him in the United States District Court for the District of New Jersey, United States v. Collardeau et al., CR 03-800 (D.N.J.).
- Foster, age, 66, a resident of Williamsburg, Massachusetts, and the putative owner, president, and CEO of the Cobalt affiliate that purportedly runs Cobalt Multifamily, and person "in charge of overseeing all aspects of the operations of [the Company's Manager] and its Affiliates."
- Vail, a trust organized under Connecticut law, is named as a relief defendant.
The Complaint charges that all defendants violated Sections 5(a) and (c) and 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act, that Cobalt Funding and Stitsky violated Section 15(a) of the Exchange Act, and that Stitsky violated the Commission orders barring him from associating with a broker or dealer. In addition to the emergency and preliminary relief discussed above, the Complaint seeks permanent injunctions, disgorgement of defendants' ill-gotten gains, and civil penalties.
The Commission acknowledges the assistance and cooperation of the United States Attorney's Office for the Southern District of New York and the Federal Bureau of Investigation.
