by Brian Mahany
Some of the largest Ponzi schemes are those that target a specific religion or ethnic group. These so called affinity frauds work because people in closed communities tend to trust one another more than outsiders. For Gaston and Teresita Cantens, their $135 million fraud scheme targeting Cuban exiles came to a screeching halt last week.
The government said the Cantens owned a Miami real estate development company called Royal West Properties. Prosecutors say that the Cantens and Royal West sold promissory notes promising 9 to 16% rates of return. Many of the people investing in the notes were Cuban exiles living in southern Florida.
While raising $135 million dollars, the Castens would tell investors that their investment was safe and backed by recorded mortgages. In fact, the company had been hemorrhaging money since 2002. Royal West needed new investors simply to cash out those earlier investors who wanted to cash in their notes. But that’s not all they did.
Prosecutors say that the Cantens diverted over $20 million to themselves through ridiculous salaries and personal expenses. This included payments of $1 million to their kids and grandkids as consulting fees even though none of them performed any services.
As is typical in affinity fraud cases, the Gastens touted their ties to the Cuban community and the Catholic church. According to the federal complaint, “The Cantens cultivated an image of a pious couple who were very involved in the community and with whom it was a privilege to invest.”
Unfortunately many of the investors (victims) were elderly and turned over their life savings to the couple.
Even a little due diligence would have uncovered the fraud. Royal West was “paying” investors a higher rate of return than it was charging borrowers who were purchasing real estate from the company. In other words, it was a mathematical impossibility that the loans being made the company could generate the required rate of return needed to pay investors.
Even after the company defaulted on its promissory notes Teresita and Gaston continued to solicit new investors and lie about their profitability.
Once again, investors will likely never see all their money. Some of the 400 investors will likely die before any of the money is collected and distributed.
It is unknown whether any investors purchased their promissory note through a broker or financial planner. Those investors may have the ability to bring their own separate action against the person or company soliciting their investment.
Mahany & Ertl is a boutique law firm concentrating in investment fraud cases. Our securities lawyers can help you recover your lost investment. Often cases can be handled on a contingent fee basis meaning no legal fees unless we win your case. Contact Brian Mahany today at (414) 704-6731 for a no nonsense evaluation of your case.
Mahany & Ertl, LLC. Milwaukee, Wisconsin; Detroit, Michigan & Portland, Maine. Services provided nationwide.