Ex-CRE CEO Charged With Leading $350M Ponzi Scheme
What started as legitimate questions have turned into serious charges made against the ex-CEO of a large North Bay Area real estate company.
Lewis Wallach, the former CEO of Bay Area real estate company Professional Financial Investors, has been charged with running a $350M Ponzi scheme involving more than 1,300 investors, the Securities and Exchange Commission said this week.
From September 2015 through this May, Wallach and late PFI founder Kenneth J. Casey improperly raised about $330M from investors wanting to put capital in multifamily and commercial properties in the Bay Area, prosecutors said Tuesday.
Casey was considered Marin County's largest commercial real estate owner, with what he said was a portfolio of 70 properties worth an estimated $555M in value.
“Instead, a significant portion of investor funds was used in a Ponzi-like fashion to pay existing investors,” the SEC complaint reads.
The complaint also alleges that Wallach embezzled over $26M in investor funds for the purchase of a vacation home, luxury cars and other personal expenses.
“We allege that PFI became a classic Ponzi scheme,” U.S. Attorney David L. Anderson said in a statement. “Money taken from new investors was allegedly used to pay existing investors while losses mounted behind the scenes.”
The charges against Wallach are related to questions raised throughout the summer about PFI and Casey, who attracted millions of dollars from individuals and families around the Bay Area.
An investigation in May following the sudden death of Casey led to an attorney noticing irregularities and alerted the SEC, which quickly opened an investigation. The attorney was handling the transfer of ownership of Casey’s companies.
Over the following weeks, Wallach and other corporate officers agreed to resign, and Michael Hogan, a managing director of accounting and business consulting firm Armanino, came on as chief restructuring officer to dig through what he called “30 years of misconduct.” PFI went on to file for bankruptcy relief in July.
More than 1,300 investors were swayed by the apparent investment opportunities offered by PFI, which the SEC alleges included three types of securities carrying annual returns of between 6% and 12%. Casey, who was also known in the North Bay for philanthropic ventures, touted his companies’ scale, which included 70 properties amounting to an estimated $555M in value.
Of the investors in PFI and affiliate Professional Investors Security Fund, "a significant portion" are elderly and invested retirement funds, with many relying on returns to pay their daily living expenses, the SEC complaint says.
Wallach, who is represented by attorneys Ed Swanson and Mary McNamara of Swanson & McNamara LLP, will plead guilty, Swanson said.
"For the past few months, Mr. Wallach has fully cooperated with the Department of Justice and the SEC in their investigations," Swanson said in a statement.
"He will plead guilty to the criminal charges that have been filed by the Department of Justice. He has voluntarily turned over property and money to PFI and PISF. He will continue to work with government to remedy the harm he has caused investors.”
Wallach faces a maximum sentence of 20 years, a fine of $250K and additional damages if found guilty.
