Developer who drew friends into Ponzi reaches $1M deal

January 8, 2011

A bankruptcy trustee who slapped former Indianapolis developer Sydney “Jack” Williams with a $115 million lawsuit last summer has done an about-face and now says he’ll settle for what likely would be around $1 million.

The proposed settlement, filed in mid-December, is the latest surprising twist in what’s been a surreal odyssey for many central Indiana businesspeople who invested millions of dollars in a Florida business that turned out to be a giant fraud.

Williams, the founder of locally based Williams Realty Group, recruited dozens of investors, many with Indiana ties, to invest in Miami Beach, Fla.-based Capitol Investments USA Inc.

The company billed itself as a grocery middleman, but in recent years had no operations. Its CEO, Nevin Shapiro, last fall pleaded guilty to money laundering and securities fraud in what authorities called an $880 million Ponzi scheme.

Williams, 62, who now lives in Naples, Fla., insisted he knew nothing of the shenanigans. But in his suit, Trustee Joel Tabas charged the developer “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. In another filing, Tabas said, “Williams brought so many investors into Capitol that he called himself the Bank of Naples.”

Among the Hoosier investors are Charles 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 firm Miller & Fisher LLC.

In the proposed settlement, Tabas noted that sworn financial statements Williams submitted after filing for bankruptcy late last year show “he has minimal assets to pay a judgment if the trustee was successful.” And he said the money Williams would pay under the deal—$300,000 from retirement accounts and half of the equity from the sale of his Naples home—would have been legally off limits to creditors.

The home is on the market for $4.995 million, after a $500,000 price cut in December. A sale at the current price would yield about $1.5 million after paying off a $3.4 million mortgage, with half allocated to the settlement.

The trustee’s law firm, Tabas Freedman Soloff Miller & Brown, took the case on a contingency-fee basis and would receive one-third of the total recovery.

Just days after Tabas submitted the settlement, a Florida limited partnership filed papers criticizing the deal and asking the court to appoint a separate trustee to take control of Williams’ bankruptcy case and investigate what he actually owns.

Benjamin Statler, a Naples retiree, said in the filing that Williams drew him into putting money into Capitol while the pair played golf and that Williams never disclosed he was paid to solicit investors.

He also noted that Williams repeatedly took the Fifth when questioned in the Capitol case—additional evidence Williams is “inherently untrustworthy.”

Further, Statler alleges the settlement is unfair to him and other creditors in Williams’ personal bankruptcy, since all the funds would be redirected to the Capitol bankruptcy—the case Tabas is overseeing. More than 60 investors in Capitol are owed more than $100 million.

“Williams has shown that he will place his own interests over and above those of his creditors, to the extent of leaving nothing behind for his creditors,” the filing says. “Without an independent trustee to investigate [Williams’] assets, and to distribute the assets equitably ... among all of Williams’ creditors, the purposes of the bankruptcy code will not be served.”

At least some of the Indianapolis-area investors have remained sympathetic to Williams. Brown, the Taco Bell franchisee, said last year: “I don’t believe he knew about it and I would still consider him a friend.”

In an interview with IBJ this month, James Fisher, the Indianapolis attorney, agreed. He noted that Williams himself lent millions of dollars to Capitol. According to bankruptcy records, the firm owes Williams more than $10 million (a debt he would forgive as part of the settlement).

“His actions wouldn’t make any sense if he knew. He invested his own money, large amounts of his own money, and may have been the single largest victim of the fraud,” Fisher said.

“I’ve always believed he did not know, and still do.”•


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