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Banking and Finance

Cay Clubs Executives Arrested In Central America To Face U.S. Obstruction And Fraud Charges

 Just weeks after a Florida federal judge dismissed the Securities and Exchange Commission's civil enforcement action accusing five executives of a failed real estate company of operating a $300 million Ponzi scheme, the Department of. Justice announced that two of the executives had been arrested in Central America and returned to the United States to face conspiracy and obstruction charges.  Fred Davis Clark, Jr., 56, and his wife, Cristal R. Clark a/k/a Cristal Coleman, 41, face a newly-unsealed indictment charging them with one count of conspiracy to commit mail and wire fraud, three counts of mail fraud, and one count of obstructing an official proceeding.  Each of the charges carries a maximum twenty-year prison sentence.

Cay Clubs was a Florida company that raised more than $300 million from over 1,000 investors through the sale of interests in luxury resorts to be developed nationwide.  Fred Clark served as Cay Clubs' chief executive officer, while Cristal Clark was a managing member and served as the company's registered agent.  The two also had ownership interests or exercised control over several other entities, including Cayman Islands-based CMZ Group, LTD ("CMZ"), Cristal Clear Charters, LLC ("CCC"), and DC6, LLC ("DC6").  Cay Clubs touted investments in interests in residential real estate, promising guaranteed annual returns of 15% purportedly derived from the purchase of decaying or abandoned properties properties that would be refurbished and upgraded into five-star resorts nationwide.  From 2004 to 2008, the company was able to raise over $300 million from investors.

After an investigation that spanned several years, the Commission initiated a civil enforcement action against Cay Clubs and five of its executives in January 2013, alleging that the company was nothing more than a giant Ponzi scheme.  However, the litigation came to an abrupt end recently when a Miami federal judge agreed with the accused defendants that the Commission had waited too long to bring charges and dismissed the case on statute of limitations grounds.  

The criminal action alleges that the Clarks not only provided false and misleading testimony during the Commission's investigation, but also took steps to conceal the status and whereabouts of their assets to further thwart the investigation.  The conspiracy charge relates to the Clarks' operation of CMZ, which operated pawn shops throughout the Caribbean.  According to the Indictment, the Clarks used CMZ to transport raw materials, including gold and precious metals, from the pawn shops to a third-party Illinois smelting plant, where the resulting proceeds were diverted to the CCC and DC6 bank accounts for their own personal use.  The mail fraud charges related to the delivery of bank statements for CCC's Bank of America account on several occasions from November 2010 to May 2011, while the obstruction charge related to Fred Clark's allegedly false and misleading testimony given to the Commission that included engaging in certain financial transactions to conceal his assets.  The Indictment also seeks the forfeiture of the funds involved in the allegations, which totals over $5 million.

While many may question the timing of the Clarks' arrest given the recent dismissal of the Commission's civil enforcement action, a review of the underlying criminal court docket reveals that the case has been pending under seal since November 2013, with the Indictment handed down on November 26, 2013. Shortly after the Indictment, the court docket reveals that authorities sought a partial lifting of the seal order to provide the indictment and arrest warrants to Interpol and foreign governments in an effort to bring the Clarks into custody and possibly cancel their passports.  These efforts culminated in the Clarks' arrest on June 20, 2014, with the Department of Justice announcing that Fred Clark had been apprehended as he was traveling from Honduras to Panama, while Cristal Clark was apprehended in Honduras.  The two made their first appearances before Key West Magistrate Judge Lurana S. Snow, and a detention hearing has been scheduled for Friday June 27, 2014 at 2:00 P.M.  Court files indicate that noted criminal defense lawyer Todd Foster has entered an appearance for Fred and Cristal Clark.

The indictment

 For more news and analysis of Ponzi schemes, visit Ponzitracker, a blog by Jordan Maglich, an attorney at Wiand Guerra King P.L.

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