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Miami real estate millionaire Harvey D. Wolinetz doesn’t do business like most tycoons. For him, it’s a matter of faith. Deals are made on a handshake. And so it was when he met New Jersey developer Eliyahu Weinstein, a fellow Orthodox Jew. Weinstein told Wolinetz that he was a rabbi and his father had been a rabbi. Weinstein and some of his New Jersey friends abused Wolinetz’s trust and took him for $78.5 million in loans and real estate investments in an eight-month period in 2005, according to a lawsuit filed in Miami federal court this month. Wolinetz “deals with the world in a trusting way, and they took advantage of that trust,” said his attorney, Melanie Damian of Miami. The nut of the fraud lawsuit rests in Wolinetz’s ties to Weinstein as members of the same faith. “Members of the community believe that a man’s honor is his most valuable possession and a man’s word is as good as any written contract,” the lawsuit said. “As a result, business is often transacted without any documentation or through simple letter agreements prepared by the parties themselves.” Another lawsuit has been filed by Wolinetz against Weinstein in New York State Supreme Court in Staten Island. A British investor also sued Weinstein in U.S. District Court in Philadelphia last March for $36.5 million on unrelated properties. Weinstein often promised to pay 14 percent or 15 percent interest on loans from Wolinetz, according to the Miami lawsuit. In some ways, the allegations reflect the age-old scam of affinity fraud. But the lawsuit claims Weinstein didn’t target a whole group, focusing on Wolinetz by hooking him in a booming real estate market, the original source of Wolinetz’s riches. Affinity investment fraud preys on members of identifiable groups, such as religious or ethnic communities, seniors or professional groups. “The fraudsters who promote affinity scams frequently are – or pretend to be – members of the group,” the Securities and Exchange Commission says on its Web site. Marc D. Powers is the national leader of securities litigation regulatory enforcement practice at the 600-lawyer law firm of Baker Hostetler in New York. He said he doesn’t know the specifics of Wolinetz’s case, but it sounds like it is as much about breach of fiduciary duty as affinity fraud. “Affinity fraud involves those types of situations where there is some personal relationship or group interest in a particular kind of thing that kind of bonds people together,” he said. One case he had in New York involved a lawyer who targeted the Knights of Pythias, persuading members of the fraternal group and others to invest $35 million in buying mortgages on depressed properties. “What it turned out to be was a Ponzi scheme,” Powers said. “The lawyer ended up going to prison and dying there.” Wolinetz alleges breach of fiduciary duty and civil racketeering in the 10-count lawsuit. A racketeering finding would open the door to treble damages. Wolinetz’s trust was “founded on the fact that both men come from the same Orthodox Jewish community,” the suit states. “Instead, Weinstein exploited Mr. Wolinetz’s trust by defrauding him.” Besides Weinstein, the 27-page lawsuit names as defendants Weinstein’s wife, Rivka Bichler, and two other couples: Simcha and Elana Shain and Michael and Barbara Gindi, who live in the Lakewood, N.J., area. “We believe they [the Shains and Gindis] have some of the funds Wolinetz gave to Weinstein, that those funds have been put in assets held jointly by them,” said Damian of Damian & Valori in Miami. Weinstein and Michael Gindi teamed up with Jeremy Green on a number of Miami-area projects including the purchase of the 15-story One Flagler office building at 14 NE First Ave. The 142,343-square-foot tower would end up playing into Weinstein’s shell game, according to the lawsuit. Weinstein attorney Howard Kleinhendler of Wachtel & Massyr in New York said his client’s investors are turning on him because they are losing money in a bear market. “Unfortunately, when the market suffers a downturn and people are no longer making money with guys like Weinstein, suddenly everybody turns into a villain,” Kleinhendler said. “The point is we are going to vigorously defend ourselves, and we are confident at the end of the day that the allegations against us will not stand up in court.” Attempts to reach the other defendants by phone were unsuccessful, but Gindi responded by e-mail. “I and others are owed significant monies from Weinstein,” Gindi said. Wolinetz invested through several companies with Weinstein and his real estate companies for about seven months. A dozen property purchases included six in New Jersey and others in Volusia County, Atlanta, Brooklyn, N.Y., Lawrence County, Pa., and Memphis, Tenn. One was in Weinstein’s hometown. Wolinetz’s companies involved in the purchases were Park National Capital Funding, H&N Associates, Aretz Associates and Park National Mortgage Servicing. In many ways, Weinstein played a shell game with Wolinetz, seeing if the investor could keep up with his money, Damian said. She has asked U.S. District Court Judge Patricia Seitz in Miami to appoint a forensic accountant to unravel the money movements. Wolinetz also is seeking an injunction to bar the defendants from selling or transferring any of the properties and to ward off foreclosure. See if you can follow the bouncing ball on just one property. Around November 2005, Weinstein approached Wolinetz and solicited an $8 million loan at 14 percent interest to buy a building in Berkeley Township, N.J. At a meeting in June 2006, Wolinetz learned the loan had been diverted to other New Jersey properties. When Wolinetz asked for his money back, Weinstein promised to turn the one property into a co-op, “creating a high-return for all investors,” according to the lawsuit. Finally, Wolinetz agreed to transfer all shares of companies that bought the properties to Wolinetz. But as Wolinetz was filing paperwork to consolidate his properties under one company, Weinstein sold a stake in one to two purchasers and pocketed $1.8 million from the sale of a second property, the lawsuit alleges. Co-defendant Simcha Shain alleged in a separate lawsuit against Weinstein that his name was forged to transfer property. Weinstein’s biggest score came in Florida, the civil suit claims. He obtained $37.5 million from Wolinetz to buy 6,275 acres in the Volusia County community of Edgewater. Weinstein started off requesting a loan at 15 percent interest, saying Wolinetz would be repaid upon resale or disposition of the property. Damian said it’s not known if the property in Volusia County was ever purchased. But the money may have been diverted to possible purchases in Baker County “in furtherance of his game of ‘hide the ball,’” the lawsuit states. The lawsuit goes on to say Weinstein engaged in a continuous game of stealing by lying about property values, ownership and debt. “In fact, Weinstein admitted that he is ‘in the business of lying,’” the lawsuit alleges. When Wolinetz asked for his money back on the Edgewater deal, the suit claims Weinstein told him he would transfer $14.4 million of equity from the Edgewater land deal to his One Flagler building and assign his interest in nearby property at 230 Southwest Third Street as additional collateral on the $37.5 million loan. The One Flagler stake, at best, was worth $6.5 million, and Weinstein’s interest in the other property is worthless, according to the lawsuit. “When it comes down to it, this is a simple fraud case,” Damian said. “It’s the lies that got complicated.” This article originally appeared in the Daily Business Review , a publication of ALM.

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