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Miami Couple Accused of $135 Million Ponzi SchemeBusiness owners allegedly targeted investors at charitable and religious gatherings and at social functions in their home, according to the SEC
The SEC charged a prominent Miami business leader and his wife with fraud Wednesday, alleging they conducted a $135 million Ponzi scheme involving real estate investments from hundreds of elderly Cuban-American investors. The SEC alleged that Gaston Cantens and Teresita Cantens, founders of Royal West Properties, "portrayed themselves as a pious couple" and gained the trust of investors "in typical affinity fraud fashion by cultivating an impression within their community that it was a privilege to invest with them."
Daily Business Review2010-03-05 12:00:00 AM
The Securities and Exchange Commission on Wednesday charged a prominent Miami-based business leader and his wife with fraud, alleging they conducted a $135 million Ponzi scheme involving real estate investments from hundreds of elderly Cuban-American investors living in South Florida.
The SEC alleged that Gaston E. Cantens and Teresita Cantens, the founders and co-owners of real estate development company Royal West Properties, sold promissory notes to investors after acquiring various properties and later financing their sale.
The Cantenses lured investors by saying investments in their real estate business were safe and would produce annual returns of between 9 percent and 16 percent, the SEC said. However, when property owners defaulted on their mortgages, Royal West's financial condition deteriorated and the Cantenses used new investor money to repay earlier investors and cover the firm's operating costs.
The Cantenses also misappropriated more than $20 million from investors to fund unrelated personal business ventures, pay themselves high salaries and divert money to their children and grandchildren.
Neither Gaston nor Teresita Cantens could immediately be reached for comment. A telephone number listed for Gaston E. Castens in Miami has been disconnected.
Gaston I. Cantens, the Cantenses' son, is a former Florida state representative and a vice president at Florida Crystals. He is not involved in the SEC complaint.
Royal West was the subject of an involuntary Chapter 11 petition in May, when three creditors filed claims totaling $1.26 million. The U.S. Bankruptcy Court for the Southern District of Florida appointed Drew Dillworth of Stearns Weaver as trustee for the company in July. The case was converted to Chapter 7 a month later.
The company sold properties in Southwest Florida, a region of the state especially hard hit by the real estate crisis.
The Cantenses were not registered with the SEC under the federal securities laws to make securities offerings to investors, the agency said in a statement.
"The Cantenses used their prominent standing in a close-knit Cuban-American community to ruthlessly exploit vulnerable elderly investors who trusted them with their life savings," said Eric Bustillo, director of the SEC's Miami regional office.
"They portrayed themselves as a pious couple closely involved with educational and religious organizations, while in reality they were living lavishly off money from defrauded investors."
According to the SEC's complaint, filed in U.S. District Court for the Southern District of Florida, the Cantenses gained the trust of prospective investors "in typical affinity fraud fashion by cultivating an impression within their community that it was a privilege to invest with them."
The Cantenses emphasized that Jesuit priests and other well-known leaders in the Cuban-American community had invested with Royal West. They targeted investors at charitable and religious gatherings and at social functions in their home, the SEC said.
They also recruited investors through their contacts with alumni and others associated with a local private boys' school (Belen Jesuit Preparatory School), where Gaston Cantens served on the board of advisers, according to the SEC.
Besides word of mouth, the Cantenses also attracted potential investors who learned of Royal West properties through television commercials broadcast on Spanish-language channels nationwide.
The SEC alleged that the Cantenses made numerous material misrepresentations and omissions about the safety and security of investors' principal and returns, the success of Royal West's business, the source of purported investment returns and the use of investor funds. The Cantenses told potential investors that Royal West generated investors' returns through the sale of land and its mortgage receivables business, which they claimed was highly successful.
"These representations were false because Royal West was not generating sufficient income from its real estate business and mortgage receivables to pay its business expenses or investors' principal and interest payments," the SEC statement said.
By 2002, the Cantenses had resorted to using new investor funds to make principal and interest payments to earlier investors, the agency said. Even after Royal West's financial condition became dire, the Cantenses continued to tout their business as financially successful in order to attract new investors and raise additional millions of dollars to continue the Ponzi scheme, the SEC alleged.
The SEC also charged that the Cantenses falsely said the promissory notes were collateralized by mortgages or mortgage obligations. In fact, Royal West did not record as many as one-third of the assignments of mortgage receivables that served to collateralize investors' promissory notes. Royal West also assigned the same mortgage receivables to multiple investors at the same time.
The SEC's complaint charges the Cantenses with violating the securities registration and anti-fraud provisions of the federal securities laws. The complaint seeks permanent injunctions, sworn accountings, disgorgement of ill-gotten gains and financial penalties against the Cantenses.