SEC Charges Elie Schwartz With Defrauding Investors, Seeks Permanent Injunction

A week after Nightingale Properties CEO Elie Schwartz pleaded guilty to defrauding investors, he is facing a new civil lawsuit from the Securities and Exchange Commission that could result in additional penalties, including a permanent ban on issuing securities.

The SEC filed a complaint against Schwartz this month in the Northern District of Georgia, asking a federal judge to permanently bar the 46-year-old real estate executive from selling or issuing securities after he misappropriated more than $52M raised on the CrowdStreet platform.

The lawsuit echoes the criminal information filed last year against Schwartz by prosecutors with the Department of Justice. He pleaded guilty to one count of wire fraud and faces up to 20 years in prison, with sentencing set for May.

Nightingale raised roughly $54M from investors on CrowdStreet in 2022 in a bid to purchase the Atlanta Financial Center office complex, then raised $8.8M to recapitalize a vacant office building it owned in Miami Beach.

The deals publicly fell apart in June 2023, when independent manager Anna Phillips was appointed by the investors to manage the entities Schwartz set up to execute the transactions. She put them into bankruptcy the following month. 

The SEC's lawsuit contains new allegations about how Schwartz moved investor capital around and his relationship with CrowdStreet, which isn't named in the 24-page document. 

The Austin, Texas-based crowdfunding platform said in a statement last year when Schwartz was initially scheduled to be arraigned that it discovered his fraud and was also a victim. 

“From the moment we learned about this fraud, we have been unwavering in our commitment to transparency and justice. CrowdStreet uncovered the fraud and alerted federal authorities,” the statement says. “To protect investors and uphold our principles, we provided substantial resources — millions of dollars — to initiate the appointment of an independent trustee to recover funds for victims.”

Phillips said on an August 2023 webinar that she was working with investigators from the SEC and DOJ.  

“The feds are absolutely engaged and focused, and we’re cooperating fully with them,” Phillips said at the time, according to a recording obtained by Bisnow.

Phillips declined to comment on the SEC's lawsuit through BakerHostetler attorney Jorian Rose, who is representing the entities in bankruptcy court. A CrowdStreet spokesperson referred Bisnow to its previous statement and declined to comment further.

SEC attorneys wrote in their lawsuit that Schwartz was introduced to “the Third-Party Provider” at an industry conference in Miami in November 2021. His longtime partner and Nightingale co-founder Simon Singer had left the firm that year, leaving Schwartz in full control of its substantial portfolio. 

Two months after their introduction, Schwartz raised $25M on CrowdStreet for Nightingale's $130M purchase of the 480K SF office tower at 200 W. Jackson Blvd. in Chicago. In March 2022, Nightingale and CrowdStreet started due diligence for the Atlanta deal, targeting a $16M equity raise from the accredited investors on the platform, according to the lawsuit.

CrowdStreet wasn't yet registered as a broker-dealer of securities, so it took the position that it couldn't hold investor funds — instead, it directed its customers to wire their investments directly to a bank account controlled by Schwartz, starting June 6, 2022.

The operating agreement Schwartz signed stipulated that he had a fiduciary duty to safeguard the funds and would only use them to purchase the 915K SF office campus in Buckhead. He signed the same agreement a few months later when he kicked off the Miami Beach offering. 

But three days after the first checks came in, with a minimum investment of $25K, Schwartz started diverting funds to other accounts, the lawsuit says. 

“Schwartz and Nightingale used the misappropriated funds to prop up various other Nightingale properties that needed capital,” the complaint says. 

He also used $7M to build a luxury condo in Miami, the SEC wrote, and spent $12M on stocks and options in various companies, including $6.4M in First Republic Bank stock “in an apparent attempt to bet on the bank when it was on the verge of collapse.”

Schwartz bought luxury watches, paid off credit card bills and cycled money into other business accounts — SEC attorneys wrote that at least five Nightingale properties were either up for auction or in the process of being foreclosed on, and two others were also struggling.

Some funds moved back and forth between the CrowdStreet accounts, the SEC found.

“Defendants sent $4 million from the Atlanta Financial Center Offering to cover expenses related to the Miami Beach Offering,” the lawsuit says. “Later, Defendants used $4 million from the Miami Beach Offering to fund investor refunds and other misappropriation of the Atlanta Financial Center funds.”

In all, 821 CrowdStreet investors suffered $52.5M in losses, the SEC claims. In its demand for a jury trial, the SEC hopes to force Schwartz and his companies to fully account for the proceeds he embezzled and pay back his ill-gotten gains with interest, plus additional civil penalties.

The SEC is also pursuing a permanent injunction on Schwartz and any entity he controls or owns from “participating in the issuance, purchase, offer, or sale of any security,” except for his own personal account.

Schwartz already agreed to pay full restitution, plus interest, as part of his plea agreement for the wire fraud charge, according to court documents. A bankruptcy judge granted Phillips authority to liquidate his assets — including a Manhattan penthouse — and the DOJ agreed to consider payments from that process toward the restitution.

That amount, and the length of his prison sentence, will be determined by District Court Judge Steven Grimberg at a May 19 hearing.