Bankruptcy and Fraud and Investment Losses and Lawsuits and Law

Trustee sues real estate exec for $115M

July 10, 2010

The founder of an Indianapolis real estate firm is accused of preying on a network of longtime friends to help a Miami man perpetrate a $900 million Ponzi scheme.

Sydney “Jack” Williams, who founded locally based Williams Realty Group, persuaded more than a dozen Indiana investors from 2003 to 2009 to lend millions of dollars at high interest rates to a food brokerage firm called Capitol Investments USA Inc.

Trouble is the Miami Beach, Fla.-based company, which purportedly acted as a grocery middleman, actually conducted no business operations from 2005 to 2009, federal authorities say. They allege the company paid previous investors—along with enormous commissions to Williams—with new money coming in.

A court-appointed trustee in the company’s bankruptcy liquidation this month sued Williams and companies he controls to recover more than $115 million. The trustee alleges Williams, 62, “knew or should have known” Capitol was a fraud but was motivated to perpetuate it to collect commissions.

According to court papers, Williams earned a 10-percent commission on hundreds of loans, many of which came from friends he met as a Sigma Chi at Ball State University.

An attorney for Williams, Martin Raskin of Miami, denied the trustee’s allegations and questioned the timing of the 565-page filing, on the Friday before the Fourth of July weekend.

“We recognize a trustee will throw everything he can against the wall and hope something sticks—in this case, it simply will not stick,” Raskin said. “If he’s complicit in a Ponzi scheme, is he going to have his money in it when it falls apart and have these loans guaranteed by his house when it falls apart? Jack was as much a victim as anyone else.”

The owner of Capitol Investments, Nevin K. Shapiro of Miami, is facing federal charges for orchestrating the scheme to defraud more than 60 investors and is being held in a federal prison in New Jersey. Williams has not been charged with any crime.

Williams sold his interest in Williams Realty, which he founded in 1980, several years ago. He now serves as co-chairman of Naples, Fla.-based National Equity Trust, a real estate investment and finance firm.

Bankruptcy filings show Capitol Investments owes Williams $10.4 million on loans he provided. Other Indiana investors are owed $11 million on the tens of millions of dollars they lent over the years to Capitol Investments.

Joel L. Tabas, a Miami attorney acting as bankruptcy trustee, described Williams as a co-conspirator in the Ponzi scheme—not a victim—in the July 2 court filing.

“Williams participated in the Capitol scheme by … accepting commission payments despite having actual or constructive knowledge that the investments were being made in a Ponzi scheme,” Tabas wrote. “Williams brought in so many investors into Capitol that he called himself the Bank of Naples.”

Tabas is seeking to recover more than $115 million in commission and interest payments Captitol made to Williams. The money—which was paid to Williams and his companies in the four years before the bankruptcy filing—would go toward repaying the other investors.

The trustee also is seeking to cancel the loans Williams supposedly is owed. In his filing, Tabas called the promissory notes fraudulent and said they “do not correspond to any actual deposits into Capitol.”

Pumping in money

Among the Indiana investors is Charles W. Brown, a principal in Indianapolis-based Southern Bells Inc., one of the nation’s largest Taco Bell franchisees with restaurants in three states. Records show he is owed $490,000 on a loan he made in 2008.

“It’s not something I’m very happy about or proud of,” said Brown, who nonetheless believes his friend from Ball State had no idea he was helping to perpetuate a Ponzi scheme. “I don’t believe he knew about it and I would still consider him a friend.”

Among the other local investors: prominent local attorney James R. Fisher, a former Ice Miller partner and principal in Indianapolis-based Miller & Fisher LLC; Jon E. Smith and his company Smith Implements Inc., a John Deere dealer with locations in Greenfield, Greensburg, Rushville and Richmond; and Terrance A. Smith, a beer distributor in Anderson.

A bankruptcy schedule for Capitol Investments shows $132 million in liabilities against just $500 in assets.

Investors also might be able to pursue recovery through a personal bankruptcy case filed by Shapiro, 41, though that doesn’t look much more promising. The filing claims assets of $5.5 million including his house and car, but both are encumbered by loans.

The Securities and Exchange Commission said in April that Shapiro misappropriated at least $38 million of investor funds to finance outside business ventures, fund his lavish lifestyle, and pay large commissions to people who recruited new investors.

The largesse allowed Shapiro to live in a $5.4 million house, drive a Mercedes CLK 500, and give $150,000 to the University of Miami for a student-athlete lounge.

Deposition scheduled

Williams is scheduled to give a deposition in the case July 22. Many of the investors are waiting to see if Williams follows Shapiro in invoking the Fifth Amendment. Raskin, Williams’ attorney, said he will testify.

The Indiana investors were attracted by annual interest rates as high as 26 percent and reassured by promises from Williams—who called the loans a “very safe” investment, “a financially smart thing to do,” and a “no-brainer,” court filings claim.

But when the interest payments abruptly stopped in early 2009, investors began feeling nervous. One of them, local management consultant George Garrett, e-mailed fellow Indianapolis investors that August.

He argued Shapiro owed the investors an honest explanation, and they could no longer take their old friend Syd Williams at his word.

“Let’s face the facts here, it looks like a Ponzi scheme and it smells like a Ponzi scheme, and it may well be a Ponzi scheme and I’m getting a bit nervous just like you, but Syd assures us it is not,” he wrote in an e-mail that’s now part of the bankruptcy court record. “I am running out of patience.”

In February 2009, Williams told Carmel resident Jim Meyer in an e-mail that his $200,000 investment was “fine” even after Shapiro had failed to pay interest as the agreement required.

Williams’ reassurances led investors to hold off from taking legal action, for a while at least.

Investor Sherwin Jarol of Chicago-based Bradley Associates, fearing Shapiro was hiding assets, filed involuntary Chapter 7 bankruptcy for both Shapiro and Capitol Investments in November 2009.

Williams is a longtime partner of Bradley Associates. Jarol did not return phone messages.

The bankruptcy judge appointed a trustee in December 2009, and federal prosecutors filed securities fraud and money laundering charges against Shapiro this April.•

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