NJ regulators allege ‘massive nationwide fraud’ by real estate fund
New Jersey securities regulators have ordered development firm Secaucus National Realty Investment Advisors to cease what they say is fraudulent activity, alleging the company deceived investors while funneling millions of dollars to executives and their families.
The New Jersey Bureau of Securities said in its 63-page cease and desist order that the NRIA engaged in “massive nationwide securities fraud” in its handling of some $630 million. dollars raised from at least 1,800 investors using broadcast ads and billboards promising returns. up to 21%.
The order, issued on Tuesday, comes about two weeks after recently appointed NRIA Director Brian Casey filed a Chapter 11 petition seeking bankruptcy protection.
Casey assumed leadership of the company after the departure of Rey Grabato, its longtime president and CEO, and Coley O’Brien, its former CEO.
The NRIA and several affiliates, as well as Grabato and O’Brien, are named as respondents in the order, as are Thomas Nicholas Salzano – whom regulators call the “brain” of the NRIA – and Arthur Scutaro, vice president of the NRIA.
“These respondents presented investors with a securities opportunity that seemed too good to be true, and it was,” Amy G. Kopleton, the office’s acting director, said in a statement.
Casey, Grabato and Scutaro did not respond to messages seeking comment, nor did a lawyer for Salzano. O’Brien’s contact information could not be found.
New Jersey law provides additional penalties, such as monetary penalties, against defendants named in the order, said Arthur Laby, director of the Rutgers Center for Corporate Law and Governance, which reviewed the document.
The bureau “alleged gross misconduct,” Laby said.
The NRIA told the Philadelphia Inquirer last year that it believed it had been clear in its disclosures to investors. He said he has never missed an investor’s payment or been sued by an investor.
The NRIA has promised investors big returns on its apartment, condominium and townhouse projects in Philadelphia, northern New Jersey, Brooklyn and Palm Beach County, Florida.
In post last yearthe Philadelphia Inquirer suggested that the company exaggerated the success of its projects, leading it to rely on money from new investors to pay for existing ones.
The New Jersey order alleges that the NRIA failed for years to disclose that the 6% annualized “distributions” investors received from the company came from their own capital contributions, not from the company’s trading income .
“Respondents were simply reimbursing investors with their own money,” the regulators wrote in the order.
The company and its executives also insufficiently informed investors that up to a quarter of their funds had been used to buy high-yield commercial mortgage-backed securities in hopes of generating the returns that the NRIA failed to generate. not realized. of its alleged strategy of developing residential properties for resale, according to the order.
Meanwhile, the NRIA and its leaders had diverted money to relatives and for personal use, regulators said.
Salzano’s wife, Olena Budinska, earned more than $2.1 million between 2018 and 2021 “for a no-show position in which she was not employed by the NRIA fund and provided no services of value to the NRIA fund,” according to the order.
The NRIA awarded additional millions to companies controlled by relatives of Salzano and Scutaro, without disclosing the transactions as potential conflicts of interest, regulators said. Among them were contracts with Philadelphia-based US Construction, which is co-owned by one of Salzano’s sons, according to the order.
Budinska and a lawyer for US Construction did not respond to requests for comment.
Over $440,000 in investor funds also went to two India-based companies, Ably Soft Pvt. and FATbit Technologies — for generating websites aimed at blurring Salzano and Scutaro’s past with a former Newark, NJ-based telecommunications company called NorVergence, regulators said.
NorVergence marketed a device called the “Matrix Box” that was supposed to provide cheap phone and internet service, but it didn’t work as advertised, according to a Federal Trade Commission complaint. As an executive of NorVergence, Salzano was fined $50 million in 2006 by the FTC for engaging in unfair and deceptive practices, two years after the company ceased operations and filed a petition for bankruptcy.
Scutaro had been senior vice president at NorVergence.
FATbit created websites for a bogus environmental organization, also called ‘Norvergence’, to ‘clean up Salzano and Scutaro’s sordid past’ by shifting web searches leading to information about the bankrupt telecom company , according to the order.
Cousins of former CEO Grabato were also paid to create fake blogs using Salzano’s name “to further remove negative links”, regulators said.
The inspector reported on the online disinformation campaign Last year. Manish Bhalla, who identified himself in a LinkedIn profile as the chief executive of Ably Soft and FATbit, did not respond to a message seeking comment.
NRIA leaders had long sought to downplay Salzano’s apparent role in the company, which he, in fact, “managed and controlled,” according to the order.
The NRIA described Salzano as occupying an “independent contractor leadership role”.
Salzano was arrested by the Federal Bureau of Investigation in early 2021 following a January 2019 incident in which he allegedly used fake loan papers to try to get more money from an existing investor from the NRIA. Later in 2019, he attempted to secure a $20 million loan from
using another false document, depending on the order.
Salzano’s initial court date on criminal charges surrounding the January 2019 incident has been repeatedly postponed and is currently continuing until at least July 29. The Securities and Exchange Commission has also filed a civil complaint against Salzano regarding this incident.
No charges have been announced in the alleged fraud attempt by TD Bank, which declined to comment for this article.
Despite knowing of the fraudulent activities, other NRIA officials named in the order took no action against Salzano, as he “kept investors in the dark” about the incidents, they said. writes the regulators.
Write to Jacob Adelman at [email protected]