Wextrust Capital owners Steven Byers and Joseph Shereshevsky, along with four Wextrust affiliates, have been charged with defrauding investors of funds raised in private placements by the Chicago-based private equity real estate firm.
Byers and Shereshevsky were arrested yesterday, charged with diverting at least $100 million (€67 million) dollars to “unauthorized purposes,” according to documents from the US Securities and Exchange Commission.
The SEC alleged that Wextrust and its affiliates were involved in a Ponzi-type scheme – using money from new investors to pay off old investors – from 2005 or earlier, raising approximately $255 million in private placements from 1,196 investors throughout the US and abroad. Investors were primarily members of the Orthodox Jewish community.
Wextrust conducted at least 60 securities offerings through private placements and set up around 150 entities in the form of limited liability companies or other vehicles to act as issuers of the offerings, according to the SEC, with the majority of the offerings occurring between 2005 and 2008. However, the SEC said the funds raised were used to pay returns owed to investors in prior offerings and for “other expenses” of Wextrust and its affiliates. Wextrust could not be reached for comment.
In one incidence in 2005, the SEC alleged that Wextrust claimed that more than $9 million of funds raised would be used to buy real estate leased by the US federal government, such as the General Services Administration. But the properties were never purchased and, the SEC claims, Wextrust “borrowed” more than $6 billion from the GSA funds for “unrelated purposes.”
The Wextrust suit, filed in federal court in Manhattan yesterday, is to take place in the Southern District of New York, against Wextrust and principals Byers and Shereshevsky as well as affiliates Wextrust Equity Partners, Wextrust Development Group, Wextrust Securities and Axela Hospitality. The SEC has already frozen Wextrust’s assets and has moved to stop “ongoing offerings,” the commission said.
Byers and Shereshevsky formed Wextrust in 2003 with partners to target investment opportunities primarily in undervalued real estate assets.