Ex-Cay Clubs CFO Seeks Leniency In $300M Ponzi Sentence
Ex-Cay Clubs CFO Seeks Leniency In $300M Ponzi Sentence
By Joyce Hanson of Law360.com
A Florida real estate executive convicted for bank fraud in an alleged $300 million Ponzi scheme repeated his opposition to prosecutors’ recommendation of a 93-year prison sentence and millions in restitution and fines on Monday, saying he has no prior arrests and has a low likelihood of recidivism.
David W. Schwarz, the former chief financial officer of Cay Clubs Resorts and Marinas, said many other courts have determined that the U.S. Code’s sentencing guidelines for financial crimes are heavy-handed, and he argued that the factors in his case warrant a downward variance of his sentence due to the nature and circumstances of his offense.
“Schwarz’s personal characteristics, including his age, educational attainment, marital status, and lack of criminal history, present an extremely low risk of recidivism, and therefore his future risk to the community is limited as well,” according to his Monday sentencing memorandum. “The nature of the offense is also one with a little likelihood of recurrence. With such a low risk of recidivism, the purposes of 18 U.S.C. 3553(a)(2) can be achieved with a downward variance.”
On April 17, in a court filing that laid out his objections to the prosecution’s presentence report, Schwarz similarly argued that he was a nonviolent, first-time offender and that the U.S. government’s delay in bringing charges against him was an attempt by prosecutors to punish him for the entirety of the Cay Clubs fraud.
Schwarz in that filing also argued that the prosecutors propose a “shocking” sentence that would place him among the worst 1 percent of offenders. Prosecutors calculated the losses stemming from his acts at more than $169 million — far beyond the actual losses associated with the charges he was convicted of — and recommended fines beyond $338 million without explaining how those amounts were calculated, he said.
In saying he was deserving of a downward variance, Schwarz said Monday that the government waited more than nine years after the last actions alleged in the indictment to file charges against Schwarz, missing the statute of limitations cutoff by months in the alleged scheme that took place from 2004 to 2007. The indictment was filed in October 2016, Schwarz said.
“Despite many, many years in which [the government] had the opportunity to build a case against Schwarz for the entire Cay Clubs scheme, the only charges it could muster during that time were related to three discrete incidents of bank fraud of the more than 1,400 real estate transactions,” Schwarz’s Monday memorandum said. “Of these, Schwarz was acquitted of one, and was acquitted entirely of making false statements in connection with any of the incidents.”
Federal prosecutors brought the criminal charges against Schwarz in October, the same month the U.S. Securities and Exchange Commission reached an agreement to drop a related suit in the wake of a federal judge’s ruling that most of the agency’s claims were time-barred.
The SEC’s suit charged Schwarz, Cay Clubs CEO Fred Davis Clark Jr. and other former executives with running a Ponzi scheme, raising more than $300 million from nearly 1,400 investors and using new deposits to pay earlier investors while lining their pockets with millions.
According to the subsequent indictment, Schwarz and Clark started Cay Clubs in 2004 but allegedly hatched their scheme two years later after sales faded due to their failure to maintain the properties. The defendants allegedly gave the false impression that the properties were in demand and appreciating in value by selling them back and forth among themselves, using employees and family members as straw buyers.
Loan documents used to obtain mortgages from JPMorgan Chase & Co. for those fraudulent sales included falsified signatures and false notary attestations, which constituted a bank fraud conspiracy, according to the indictment.
The government also claimed that between 2004 and 2008, when the Key Largo, Florida-based operation collapsed, Clark and Schwarz accumulated more than $28 million in personal proceeds from the business but didn’t file any corporate tax returns for Cay Clubs and didn’t file individual tax returns until Cay Clubs fell under SEC investigation.
But on Monday, Schwarz said that he is a 60-year-old man with no prior arrests or convictions, “with barely even a traffic citation on his record,” while the many letters sent in his support demonstrate his devotion to his family.
“He and his wife were, prior to his being remanded to custody, inseparable for the entire duration of their nearly 40-year marriage,” his sentencing memorandum said. “He is close with his children, and his grandchildren are repeatedly described as adoring. The picture these letters, and even the presentence report, paint of Schwarz is a man with a quiet life, loving family, and no risk whatsoever to his community.”
Schwarz’s legal counsel, Sky E. Smith, told Law360 on Tuesday that the former Cay Clubs CFO was swept into the alleged scheme in several incidents that were beyond his control.
“Whatever he did is not deserving of the magnitude of the sentence,” Smith said.
Representatives for the government did not immediately respond Tuesday to requests for comment.
The government is represented by Jerrob Duffy, Alison Whitney Lehr and James V. Hayes of the U.S. Attorney’s Office for the Southern District of Florida.
Schwarz is represented by Sky E. Smith.
The case is U.S. v. Schwarz, case number 4:16-cr-10039, in the U.S. District Court for the Southern District of Florida.
The team of investment fraud lawyers at Starr Austen & Miller LLP fights for the protection of investors and handles cases involving securities arbitration misrepresentation, overconcentration, broker fraud, negligence and breach of trust.