CRE Investor Admits To $150M Fraud After Laundering Cash Through Crypto, Fleeing Country

Bags of destroyed evidence, empty jewelry boxes, counterfeit money and a receipt for gold — that’s what was discovered at the home and office of North Texas businessman Raheel Bhai after he fled the U.S. on the heels of a multimillion-dollar fraud scheme.

Bhai, head of Addison-based IBF Properties and IBF Hospitality, pleaded guilty to one count of wire fraud last month after falsifying and forging at least 75 documents to obtain a $149M loan from New York-based lender Benefit Street Partners. 

As part of an ongoing plea deal, Bhai admitted to falsely inflating lease terms and rental income generated by a 24-property Walgreens portfolio to obtain the loan. The purpose of the scheme, according to court documents, was to funnel millions of dollars back into the Bhai family’s coffers.

After absconding overseas with his family, Bhai has since returned to the U.S. to enter a guilty plea and is facing a maximum prison sentence of 20 years and a fine of $250K, per court documents.

Bhai and IBF represented that the one-year floating bridge loan from Benefit Street, an arm of California-based Franklin Templeton, would refinance the 24 pharmacy properties, enabling it to launch the public offering of what it claimed was a new REIT to be known as IBF Properties.

But, according to Bhai's plea deal, dozens of documents submitted were altered, forged, or both, "grossly inflating" the amount of rent the Walgreens stores were generating, falsifying the length of remaining rent payments and misrepresenting the value of the properties. In addition, Bhai admitted to funneling at least $21M of the loan to a front company "whose sole purpose was to receive fraudulent proceeds from the loan," federal prosecutors said in his plea deal.

The plot thickened last week when Benefit Street filed a lawsuit against Bhai’s alleged co-conspirator, Di Hao Zhang, for helping Bhai launder more than $5M of loan proceeds into cryptocurrency to aid in his escape, presumably to Pakistan.

The story of Bhai’s fraud has all the trappings of a Hollywood con film, but beyond the spectacle is a looming question of whether the frenetic pace of commercial real estate in the wake of the pandemic created an environment ripe for illegal activity, with lenders either wittingly or unwittingly missing critical signs of fraud.

Benefit Street claims the Bhai incident was isolated, and that it performed all necessary due diligence in underwriting the loan. But at least one legal expert pointed to the case as a cautionary tale to be on the lookout for fraudulent borrowers. 

“The whole point of fraud is that there’s some sort of concealment,” said Bonnie Hochman Rothell, a Washington, D.C.-based partner at Morris, Manning & Martin. “With a clever fraudster, it might not be so obvious. Despite really diligent underwriting, a lot of lenders will miss something because they, too, have been defrauded.”

Laying The Groundwork

In mid-2020, Aileen Canta was living in Denver when she received an unexpected phone call from Bhai, a man she had met almost a year prior at a lodging conference. A longtime hotel development consultant, Canta said she was enlisted to help Bhai extend a franchise agreement with Hilton to do a renovation on a Hampton Inn in Addison.

After working as a consultant for several months, Canta was offered a permanent role as chief development officer at IBF Hospitality. She moved to Dallas in November 2020, and began helping Bhai with the acquisition and development of new hotels. 

Canta said her relationship with Bhai and his parents, Ismail and Rozmeen, was fraught from the start. Bhai often undermined her suggestions for how to grow the company’s portfolio, and she eventually began documenting what she alleged was a pattern of abuse and manipulation. 

“It was always a fight,” she said. “They wouldn’t believe in what I wanted to do. That’s when I started getting weird vibes.”

Several months after her hiring, Canta said she brought on Paul Ruffino, a former colleague who had just retired from a 36-year career in hospitality. Ruffino told Bisnow he was presented with a generous offer to relocate from California and assume the roles of chief operating officer for IBF Hospitality and general manager of the Hampton Inn.

Ruffino quickly grew suspicious that Bhai was involved in illegal activity. For one, Bhai refused to give Ruffino a master key, which struck him as odd given his role as general manager of the hotel. IBF also owed large sums of royalties and back payments to Hilton, Ruffino said, raising additional alarm. 

“It became obvious they just didn’t have the money or they were using the money for something else,” he said. “They stalled as long as they could.”

Ruffino eventually resigned in September 2021 after reporting the Bhais to the FBI for what he alleged was $11M worth of Paycheck Protection Program fraud. He claims he is still owed $240K of the $315K he invested in the company, but that his losses pale in comparison to those sustained by other victims.

“Everything was masked and hidden,” Ruffino said. “I was just told they had a shitload of money — I didn’t know how they got it, I didn’t know anything about the loans.”

An Unraveling Scheme

Things only grew more tense after Ruffino left, and by early 2022, Canta said she started to notice more bizarre behavior unfolding on the property. Colleagues of the Bhai family would come and stay at the hotel for days at a time, and Canta said she was all but forbidden to do renovation work on the third floor, where she suspects much of the illegal activity was taking place.

Then, in April, Benefit Street accused Bhai of falsifying documents after noticing rents used to collateralize the $149M loan were grossly overstated. Over a series of phone calls recorded by Benefit Street, Bhai eventually admitted to deceiving the lender and signed a forbearance agreement that would involve repaying the loan.

Bhai came clean about the fraud to Canta in July 2022, adding that his colleague, Zhang — a man Canta had seen spending days on end at the hotel — was on-site to resolve the issue. But court documents show Zhang was actually helping Bhai to launder $5M of the loan proceeds into cryptocurrency, just days before the Bhais fled the country.

Zhang not only faces a separate lawsuit filed by Benefit Street, but was indicted by a federal grand jury in September for conspiracy to launder funds. He has been awaiting trial on conditional release since October, Benefit Street said in its suit, having secured bail with a lien on a multimillion-dollar New York apartment owned by his wife.

Crain's New York said the government's attempts to go after Zhang's NYC home marks a test of federal seizure laws.

Within days of admitting the fraud to Canta, Bhai stopped answering his phone, at which point she asked a maintenance employee to let her into a room she knew Bhai used for business. It was there she discovered piles of shredded documents, along with other incriminating pieces of evidence. 

Canta proceeded to Bhai’s home in Carrollton, where she found two additional bags of garbage filled with more shredded documents, counterfeit money, empty jewelry boxes and a receipt for gold.

“I couldn’t believe it,” she said. “I was just beyond myself, I was shaking.”

Canta began working with private investigators hired by Benefit Street, and in mid-July, she was contacted by the FBI. Benefit Street filed a lawsuit against Bhai shortly after. In February, federal prosecutors charged him with one count of fraud. He pleaded guilty the same month.

“It’s been a nightmare,” Canta said. “I just don’t understand why [he] did this to me? Why me? I do not wish for anyone to go through what I’ve been through.”

Red Flags

A large portion of the debt from the $149M loan was held by Franklin BSP Realty Trust as of August, according to Commercial Mortgage Alert. Franklin BSP took a $28.4M write-down on the fraudulent loan, President Richard Byrne said during the firm’s Q2 2022 earnings call.

“We have a strong history of credit performance and believe we have a rigorous underwriting process that we are continually looking to enhance," Michael Comparato, Franklin BSP’s chief of commercial real estate investment, said during the call July 29, 2022. "This has been a difficult, unusual and criminal situation, and we are keenly focused on maximizing any recoveries."

Benefit Street is not the only lender to come under fire in recent years for failing to catch fraudulent activity committed on the part of developers or investors, Morris, Manning & Martin's Rothell said.

She said she can think of several dozen scenarios over the last 10 years that fit the bill.

“Every time there is a default, particularly where there has been a loan default close in time to the loan having been underwritten, I find regulators are going back and scrutinizing the lenders,” she said. “That has become more commonplace today.”

In the aftermath of the Great Recession, more stringent protocols were put in place to ensure lenders do their due diligence during the underwriting process, which leads Rothell to believe Benefit Street did everything by the book and was defrauded by no fault of their own.

But lenders should be on guard for additional cases of fraud during periods of economic downturns, Rothell said. When times are tough and people get desperate, criminal activity can occur, and lenders should take additional steps to protect themselves.

“Trust but verify,” she said. “The underwriting team needs to get their feet on the ground … sometimes you can catch an overstatement or a misrepresentation by actually seeing it. Don’t trust somebody’s projection, get a second appraisal if there’s something that smells in a first appraisal, and lots of communication, lots of documentation.”

Canta says the Bhai family still owes her $788K in unpaid salary alone. She hopes the loan fraud conviction is just the first domino to fall in uncovering the illegal activity she and Ruffino allege has been committed by the Bhai family. She wants to see justice served for herself and her fellow victims, who she said invested a lot, but lost so much more. 

“Twenty years isn’t enough for all the people he screwed,” she said. “I pray that there’s justice and there’s restitution, and I get awarded what I deserve.”

UPDATE, MARCH 13, 4:55 P.M. CT: This story has been updated to clarify losses incurred by Canta.