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Developer tied to Ponzi slides into bankruptcy

October 23, 2010

Former Indianapolis developer Sydney “Jack” Williams has filed for Chapter 11 bankruptcy in Florida to fend off lawsuits brought on behalf of victims of a $900 million Ponzi scheme.

The filing in U.S. Bankruptcy Court for the Middle District of Florida lists four lawsuits as the reason the founder of Williams Realty Group resorted to Chapter 11: three cases brought by investors he had recruited for a firm called Capitol Investments USA Inc., and a fourth by the Chapter 7 trustee in Capitol’s pending bankruptcy case.

The trustee in that case says Williams earned huge commissions by persuading dozens of investors, many with Indiana ties, to lend millions of dollars at high interest rates to Capitol, a Miami Beach, Fla.-based company led by Nevin K. Shapiro.

Court records allege the company, which billed itself as a grocery middleman but actually had no operations in recent years, paid Williams more than $100 million—the same amount the Chapter 7 trustee is seeking to help repay investors who fear they may be left with nothing. The individual investors suing Williams are seeking to enforce personal guarantees backing their investments in Capitol.

Williams, who invoked the Fifth Amendment right against self-incrimination more than 850 times when questioned under oath about the case in July, defended his actions in his personal filing for Chapter 11 bankruptcy on Sept. 30.

The filing lists assets of less than $50,000 against liabilities of $1 million to $10 million.

“The debtor invested in Capitol believing it to be a legitimate food-diversion company,” the filing states.

“He encouraged others, who had invested in the debtor’s business ventures, to invest in that entity and guaranteed their investments in Capitol. Later he learned that Capitol was [a] Ponzi scheme.”

The filing lists a handful of investors in Capitol as holding unsecured claims against Williams worth a total of $7 million.

Among the top 20 creditors named are Charles Brown of Indianapolis, James Myers of Carmel, and the Indianapolis-based DeRoy Family Limited Partnership.

The Chapter 11 filing did not contain all the information normally required for such a case, a deficiency Williams’ attorney, Richard Johnston Jr., blamed in court filings on “various state court actions pending against the debtor.”

Williams, who lives in Naples, has requested an extension so an appraiser can value his and his wife’s “considerable personal property.” Williams also needs to dig up information on more than 30 real estate holding companies where he is a member, manager, shareholder or officer, court filings say. His home in Naples is listed in court filings as worth $4.3 million with a secured loan of $3.43 million.

The court-appointed trustee in Capitol’s bankruptcy case, Miami attorney Joel Tabas, has until the end of the month to respond to Williams’ request to hire an appraiser.

Attorneys for Williams and Tabas could not be reached.

Tabas filed his asset-recovery lawsuit against Williams in July. Any money it yields would go toward repaying other Capitol investors.

Court records say Williams isn’t a target of a criminal investigation, but Williams’ move to invoke the Fifth Amendment suggests his attorneys fear he might become one.

Shapiro, who led Capitol, in September pleaded guilty to one count of securities fraud and one count of money laundering. He’s facing up to 17 years in prison as part of a plea agreement.

Tabas charges in his lawsuit that Williams “knew or should have known” Capitol was a fraud but was motivated to perpetuate it to enrich himself. According to court papers, Williams earned a 10-percent commission on hundreds of loans, many of which came from friends he met as a Ball State University Sigma Chi.

“Williams, who had a seven-year relationship with the debtors, is believed by the trustee to have detailed knowledge of the business affairs of Capitol,” the trustee wrote in an Aug. 12 filing.

“Williams was single-handedly involved in soliciting over 50 investors who ‘invested’ millions of dollars in Capitol’s Ponzi scheme.”

In another filing, Tabas added: “Williams brought so many investors into Capitol that he called himself the Bank of Naples.”

Among the Hoosier investors are Brown, a principal in Indianapolis-based Southern Bells Inc., one of the nation’s largest Taco Bell franchisees, and prominent local attorney James R. Fisher, a former Ice Miller partner and principal in Indianapolis-based Miller & Fisher LLC.

Another investor is Barry Alvarez, athletic director at the University of Wisconsin who for years was head football coach.

Capitol actually conducted no business operations from 2005 to 2009, federal authorities allege. Instead, the company paid previous investors—along with enormous commissions to Williams—with the new money coming in.

A meeting of creditors in the Williams bankruptcy case is scheduled for Nov. 18 in Fort Myers. The deadline to file claims is Dec. 14.•

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