Affinity Fraud is a Form of Investment Fraud in which the Fraudster Preys upon Members of an Identifiable Group such as Religious or Ethnic Communities
[Post updated May 2021] 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.
May 2021 Update
Gaston Cantens Sentenced to Prison
Frequently we revisit our posts to see “where are they now?” meaning what happened to some of the fraudsters we wrote about. There is a bittersweet ending to this story.
In April 2012, Gaston Cantens was sentenced to five years imprisonment after being convicted of conspiracy to commit wire fraud. While that doesn’t sound like much, it was the maximum sentence available to the court.
In announcing the sentence, Miami’s U.S. Attorney said,
“The defendant abused his friends and his ties to the South Florida community to enrich himself. When, as in this case, greed becomes the primary business motivator, corruption is sure to follow.”
The SEC says Cantens and his wife were ordered to pay $5,276,750, along with prejudgment interest of $88,297.62.
While investors may take solace in knowing that Cantens went to prison, we find that often restitution is never paid. Collecting money from convicted felons nearing their 80th birthday is never easy and often impossible.
Are You the Victim of Affinity Fraud?
The Gastens appear to have targeted members of the Cuban community in Miami. We believe the entire Royal West Properties scam was a classic affinity fraud. These frauds exploit the trust that exist in groups of people who have something in common. In this case the common bond were membership in the Miami Cuban exile community. In insular ethnic or immigrant groups, it can be difficult for regulators to detect an affinity scam. Victims often fail to notify authorities or pursue legal remedies.
We have an entire section on how to avoid becoming a victim of an affinity scam. Still have questions, we may be able to help if you purchased your investment through a licensed financial professional (stockbroker, insurance agent, investment advisor) or a lawyer. For a no obligation, confidential consultation, contact attorney Brian Mahany online, by email or by phone 202-800-9791.
Services provided nationwide.