FLORIDA KEYS -- Top executives of the former development company Cay Clubs appear to be the target of a federal criminal investigation.
On March 10, the U.S. Attorney's Office in Miami entered into immunity deals with two former Cay Clubs attorneys in exchange for their statements and potential testimony about misdoings by the defunct developer.
The statements, by Orlando-based attorney Scott Callahan and Fort Myers-based attorney Charles Phoenix, accuse Cay Clubs of defrauding lenders and customers and make specific reference to Cay Clubs CEO Dave Clark, Clark's wife, Cristal Coleman, Cay Clubs CFO Dave Schwarz, and the company's director of sales Barry Graham.
Both Callahan and Phoenix also acknowledge taking part in efforts to conceal information about Cay Clubs business practices from lenders in order to make the investments seem less risky.
Dennis Urbano, a Miami-based federal defense attorney unaffiliated with the case, said there can be no doubting that the Justice Department is using these immunity deals as building blocks for something larger.
"When the government puts itself in a position that they're giving immunity, they damn well intend to charge somebody," Urbano said.
The statements of Callahan and Phoenix emerged when the U.S. Securities and Exchange Commission entered them into the record last month in the $300 million civil Ponzi scheme case it is pursuing against Clark, Coleman, Schwarz, Graham and Cay Clubs Director of Investor Relations Ricky Lynn Stokes.
Between 2004 and 2008, according to the SEC, the Cay Clubs executives enriched themselves to the tune of millions at the expense of 1,400 unwitting condominium investors, while failing to complete any of their promised 17 upscale condominium complex redevelopments in the Keys, on Florida's west coast and in other states.
U.S. Attorney's Office Spokeswoman Michelle Alvarez didn't respond to a phone message last week for comment on whether the immunity agreements for Callahan and Phoenix mean the Justice Department is building a criminal case against Clark, Coleman, Schwarz or Graham.
In his statement, Phoenix said the 15 percent leaseback payments that Cay Clubs promised to investors were concealed from lending institutions on closing documents in order to bolster the company's claim that they were selling real estate and not securities -- a key issue in the SEC case. Concealing the guaranteed 15 percent returns gave lenders an inaccurately rosy picture of the Cay Clubs equity in each property.
Phoenix further stated that Cay Clubs continued to promise leaseback payments to new investors even after the company had reached a point where it didn't have the funds to make those payments to earlier investments.
"In Phoenix's view, there came a time during the course of the operation of Cay Clubs where it could fairly be described as a 'Ponzi scheme' due to its inability to pay existing leaseback obligations without new investor money," the immunity statement reads.
Kenneth Hazouri, the attorney for Clark, Coleman and Schwarz, didn't respond to messages for comment last week on potential criminal investigations into his clients. But he did address the immunity statements in a motion for them to be disallowed as evidence in the SEC case.
The Justice Department, he wrote, induced Callahan and Phoenix to provide the statements through the threat of criminal prosecution. Meanwhile, the SEC filed the statements just 48 hours before a March 20 hearing before Judge James Lawrence King in the Key West courthouse for the purpose of "smearing" the Cay Clubs defendants, he claims.
Notably, the statements of Callahan and Phoenix reference four of the five defendants in the Cay Clubs SEC case, but not the investor relations director, Stokes.
Russell Weigel, Stokes' attorney, said last week that he has heard rumblings of a criminal investigation into Cay Clubs executives, but he does not believe that his client is part of such a probe.
"I am not aware of any serious threat to prosecute Mr. Stokes," Weigel said.