SEC Charges 'Recidivist' Real Estate Exec In 'Brazen Plot' To Defraud 2 REITs
The Securities and Exchange Commission has hit another real estate investor with a major fraud charge.
The SEC has charged Michael Shustek and his company Vestin Mortgage with fraud, alleging he funneled money from two REITs he controlled, Vestin Mortgage I and Vestin Mortgage II, also known as VRTA and VRTB, to a third called The Parking REIT, the commission said in a complaint it made public on July 30. Shustek, who is based in Las Vegas, allegedly "drained" $29M from VRTA and VRTB into The Parking REIT in what the SEC called "a brazen plot."
Shustek then allegedly directed the REITs he controlled to sell and resell six buildings to each other in a series of transactions that lost money for VRTA and VRTB and made money for himself and The Parking REIT. Shustek also deceived the boards of directors of the two mortgage REITs into paying him $10M in securities transactions, the SEC claims.
Through all of these alleged dealings, Shustek directed his companies to "make false and misleading statements in their public filings" to cover his tracks, the SEC claims. The commission called Shustek a "recidivist," citing a 2006 settlement he reached with the SEC over claims he violated securities law in raising $560M from investors for two of his companies beginning in 2000. As part of the settlement, Shustek didn't admit wrongdoing but agreed to pay a $100K fine and "cease and desist" all illegal financial activities.
“The SEC’s complaint falsely claims that several years ago Mr. Shustek took advantage of two companies, without stating that he is the founder and largest shareholder of those very same companies,” Latham & Watkins attorney Manny Abascal, who is representing Shustek, said in a statement provided to the Las Vegas Review-Journal. “Mr. Shustek has successfully led those companies for over twenty years, surviving multiple recessions, a pandemic, and more recently a relentless three-year investigation spawned by disgruntled former business partners.”
In January, VRTA, VRTB and MVP Realty Advisors, another entity controlled by Shustek, agreed to sell a majority stake of The Parking REIT to a subsidiary of private equity firm Bombe Asset Management, which installed its own leadership at the company, according to an 8-K filing with the SEC. The Bombe subsidiary agreed to pay $125M for over a million and a half shares of The Parking REIT.
VRTA, VRTB and MVP also agreed to surrender claims to 400,000 shares of The Parking REIT and contribute a further 175,000 shares to settle a class-action lawsuit against Shustek. As part of the settlement and sale to Bombe, Shustek agreed to resign as CEO and step down from The Parking REIT's board and will be left with no shares of the REIT once the transaction closes.
Since President Joe Biden took office, the SEC has ramped up its enforcement actions, including suing Morningstar for CMBS manipulation, forming a task force to investigate misconduct related to ESG practices and filing civil enforcement action against a pair of Florida real estate executives for a $1.3B Ponzi scheme.
