FBI probes huge “Ponzi-style” scheme; thousands in U.S., Canada “financially destroyed”

By Dan Christensen, BrowardBulldog.org

Federal prosecutors and FBI agents in South Florida are investigating allegations of yet another massive investment fraud in which thousands of investors across the U.S. and Canada are said to have lost $170 million, Broward Bulldog has learned.

The investigation began last month after a 50-page preliminary report about the “Ponzi-style” scam was sent to a Miami federal judge by a court-appointed special master. The report called for sweeping criminal probes by U.S. and Canadian law enforcement.

“The unassailable fact (is) that thousands of investors/owners, and by extension their families in the U.S. and Canada, as well as other countries, have been financially destroyed,” says the report by Miami lawyer Thomas Scott, a former federal judge and U.S. Attorney.

Investors allegedly sank those now missing millions into timeshare units and other property owned by the EMI Sun Village Resort and Spa in the Dominican Republic. But the money actually went to fund the lavish lifestyle, and gambling debts, of the resort’s developers, court papers say.

“That money has now been almost completely lost”, the report says. “The investors’ plight is tragic. The cause of that plight is criminal.”

Scott did not respond to telephone messages seeking comment. His report says there is evidence of racketeering, fraud, securities violations, money laundering and tax evasion.

The alleged Sun Village scam comes on the heels of a spate of news about the use of Ponzi schemes to bilk investors in South Florida and elsewhere.

Those recently convicted of running such schemes include New York’s Bernard Madoff, Fort Lauderdale lawyer Scott Rothstein and lesser criminal lights like Coral Springs investment advisor Michael Riolo and Weston securities trader Sean N. Healy.

Scott’s report, which reads like an indictment, says the Sun Village scheme was a “two-tier criminal enterprise.” It points the finger at Frederick and Derek Elliott, a father and son team of resort developers from Canada, and James B. Catledge, a Nevada-based investment guru whose company, Impact Inc., peddled Sun Village property.

“Catledge and his group, along with the Elliotts, created, developed, marketed, and sold a Ponzi-style scheme, bilking millions upon millions of dollars from investors,” the report says.

Catledge, a major Republican Party donor who dined with President George W. Bush in 2008, is described in the report as “the main architect of the Ponzi scheme.”

Still, the report says “the fatal blows to the investors” were the result of the Elliotts’ gross and fraudulent “mismanagement and/or essential theft of investor monies.”

Scott recommended to U.S. District Judge Alan S. Gold that he refer the Elliotts, Catledge, and a string of underlings, attorneys and corporations to law enforcement for possible prosecution.

Frederick Elliott, who once owned a home in the 700 block of Southwest 158^th Terrace in Sunrise, his son, and 22 affiliated companies are defendants in a Miami federal civil racketeering lawsuit that gave rise to Scott’s report. The suit was filed last March.

James Moon, the Elliotts’ Miami lawyer, declined comment. But in a blistering reply filed last month, he asserted that Scott’s report is peppered with “factual inaccuracies, improper legal conclusions and misleading and grossly prejudicial statements.”

Moon asked Judge Gold to flush the report, remove it from the court’s website, and revoke Scott’s appointment as special master. A hearing is set for Feb. 1.

Catledge, who in 2008 contributed more than $100,000 to the Republican National Committee, John McCain’s presidential campaign and other Republican causes, is not a party to the suit. But he was briefly a plaintiff in a companion lawsuit last year, now withdrawn, that claimed he and his Impact Inc. sales team were also the Elliotts’ victims.

Catledge also owns a company called Net Worth Solutions, and can be seen in a pep talk video for employees here.

Catledge has retained criminal counsel, Las Vegas celebrity lawyer David Chesnoff. Chesnoff’s client list includes magician David Copperfield, Britney Spears and Martha Stewart.

“Mr. Catledge maintains that he is a victim, and as a result attempted to bring to the courts his concerns about the Elliotts. He categorically denies engaging in any criminal conduct,” Chesnoff said Thursday.

Still, Catledge and Derek Elliott each signed consent orders in 2007 with the Idaho Department of Finance in which they agreed not to sell unregistered securities or make false or misleading statements to investors regarding Sun Village.

Catledge admitted securities he had sold were not registered, and agreed to pay a $150,000 civil penalty. Elliott, on behalf of Sun Village, agreed to a civil penalty of $40,000. Both men also agreed to pay back investors, but the state has accused them of failing to pay and the litigation continues.

The South Florida civil action was brought by more than 200 disgruntled investors from around the country. An amended complaint filed last month alleges the Elliotts “conjured up a series of investment vehicles” through which investors could buy luxury vacation properties at two Sun Village projects, Cofresi and Juan Dolio with a promise of double-digit returns.

“Instead, the father and son pocketed the money and used it to finance a lavish lifestyle,” the suit says. The money allegedly financed “fanciful” movie projects, self-promotional videos, a yacht and Derek Elliott’s gambling debts in Las Vegas.

The Elliotts allegedly created a maze of offshore companies and trusts to veil the fraud and make themselves “judgment proof,” the suit says.

Frederick Elliott is said to have began to acquire raw land in the Dominican Republic 25 years ago. But it wasn’t until 2001 that plans for Sun Village’s first property – a 300 room resort on Cofresi Beach in Puerto Plata on the country’s north coast – were finalized.

Court records indicate that sales began in 2004 and continued until last year.

Sun Village marketed its Cofresi and Juan Dolio properties out of an office in Doral. Money that poured in was funneled through an account at the Citibank branch in Tamarac, according to the lawsuit.

The Juan Dolio and Cofresi projects were eventually foreclosed. Investors were wiped out when both were sold at a public auction last fall. The Elliotts contend the properties were sold for tens of millions of dollars less than they were worth.

Under oath, the developers of Sun Village have said all their money is now gone.

“The Elliotts have been unable (or unwilling) to explain exactly what happened to the massive amounts of funds which were collected,” the report says.