Fort Myers Pair Plead Guilty to Criminal Ponzi Scheme
On Dec. 8, the United States Attorney’s office in Miami announced two Fort Myers residents had pleaded guilty to criminal charges in connection with a real estate-based Ponzi scheme. According to prosecutors, Barry J. Graham and Ricky Lynn Stokes took approximately $300 million from 1,400 investors over a four-year period. Graham, Stokes and three associates were previously charged in a civil complaint brought by the U.S. Securities and Exchange Commission in January 2013.
The Cay Clubs’ Real Estate Scheme
According to the SEC’s civil complaint, Graham and Stokes, together with their accomplices, oversaw a company known as Cay Clubs Resorts and Marinas. Cay Clubs was sold to investors as a real estate development company. The company purportedly bought “undervalued” and abandoned condominium projects. Investors would purchase these units and immediately lease them back to Cay Clubs, which would renovate and resell the units at a profit. Investors were promised immediate profits of 15% or more at the time of the leaseback.
In reality, according to the government, Cay Clubs did little to no actual real estate development. The company generated little rental income from the leased back units. Graham, Stokes and company used insider deals and accounting tricks to make it look like the condo units were appreciating in value. In other words, Graham, Stokes and their partners would sell condos to one another at inflated prices, then tout the artificial gains as profit to investors. But within two years of commencing its operations, Cay Clubs lacked the income necessary to pay its “guaranteed” 15% returns. At that point the company simply used new investor funds to pay off older investors—a classic Ponzi scheme.
And as is often the case with Ponzi schemes, Graham and Stokes diverted a significant portion of investor funds to themselves. The U.S. Attorney’s office said, “Graham received approximately $6.5 million and Stokes received approximately $6.2 million disbursed as real estate commissions or referral fees from Cay Clubs’ affiliated accounts during the fraud.” The SEC’s complaint similarly noted that funds that were supposed to go towards renovating investor-owned condos were instead used to finance “lavish lifestyles” for Graham, Stokes and their associates. The SEC estimated about one-third of all investor funds went directly to Cay Clubs principals and employees.
Graham and Stokes each pleaded guilty to charges of conspiracy to commit bank fraud arising from their Ponzi scheme. They will be formally sentenced next March. The U.S. Attorney’s office has charged the other three Cay Clubs principals with bank fraud and conspiracy. Their trials will also begin next March.
Beware Irrational Real Estate Speculation
These types of cases illustrate how vulnerable many investors are to Ponzi schemes. Promises of guaranteed high returns often lure investors to write a check before thinking. Real estate schemes can prove especially attractive given the widely held (and incorrect) notion that property must always appreciate in value. That is why, if you have been the victim of a Ponzi scheme or any other type of securities fraud, contact Florida securities fraud attorney Gregory Tendrich, P.A., right away to speak with someone who can help fight for your interests.