NJ Attorney General’s Questions Cease and Desist to Secaucus-Based NRIA
The New Jersey Bureau of Securities has issued a summary cease-and-desist order to Secaucus-based National Realty Investment Advisors, LLC (NRIA), and related entities and individuals, the acting attorney general announced. Matthew J. Platkin on June 21.
This followed a determination that the company sold at least $630 million in fraudulent securities to investors in New Jersey and across the country from 2018 to 2022, according to Platkin.
Their alleged fraud involved the sale of securities, in the form of membership units in a real estate investment fund known as the NRIA Fund, to at least 1,800 investors across the country, including 380 investors in the New Jersey.
In addition to the NRIA, the entities named in the Bureau’s order are: NRIA Partners Portfolio Fund I, LLC, also known as “NRIA Funds”; NRIA Capital Partners, Inc.; and NRIA Structured Credit Strategies, LLC. The company executives named in the order are: Thomas Nicholas Salzano, of Secaucus, who was senior independent executive adviser and portfolio manager of the NRIA fund; Rey Grabato of Hoboken, chairman of the NRIA Fund and 80% owner of NRIA; D. Coley O’Brien, of Southampton, NY, co-CIO of NRIA Fund and 100% owner of NRIA Capital Partners; and Arthur Scutaro, of Bloomfield, executive vice president of project management and adviser to the NRIA Fund.
Salzano had previously been charged with wire fraud and aggravated impersonation by the U.S. Attorney’s Office in March 2021.
“The fraudulent conduct identified by our Securities Office in this case is striking,” Acting Attorney General Platkin said. “Today we are taking action to end their illegal behavior and warn the public. If an investment opportunity promising guaranteed high returns sounds too good to be true, it usually is.
Suspected Securities Fraud
According to the Bureau’s order, the NRIA and its executives touted the NRIA Fund as a billion-plus-dollar real estate development venture focused on developing “from the ground up” townhouses, condominium complexes , luxury residences and mixed-use rental developments. The NRIA claimed that the fund involved the opportunistic purchase of land or property at below market value, which would then be developed to be sold at a significant profit.
To attract potential investors, the company used a nationwide advertising campaign that included radio spots and high-profile messages on billboards located at the entrances to the Lincoln and Holland tunnels. Billboard messaging guaranteed returns of 12% on investments, with the added possibility of earning returns as high as 21%.
However, the Bureau alleged multiple violations of the anti-fraud provisions of the Uniform Securities Law of New Jersey, including using a scheme to defraud, misrepresent material facts, and omit material facts related to the sale of securities of the NRIA Fund. To cover up the company’s poor performance, its executives allegedly used investors’ money rather than actual cash flow to fund annual distributions, used fictitious buyers to create nonexistent sales of certain residential units, and inflated the performance of the company by incorrectly recognizing certain revenues in violation of generally accepted accounting principles, according to the Bureau’s findings.
As part of their scheme to get rich at the expense of investors, the Bureau discovered that the executives named in the filing allegedly used millions of dollars from investors to make lavish payments to family members, including a salary paid to Salzano’s wife for no-show work. . Executives also reportedly hired family or controlled businesses, including a construction company where Salzano’s son was the chief financial officer, and businesses owned by relatives of Grabato that were used to create impostor entities and websites.
The impersonating entities and websites allegedly aimed to reduce the risk that Internet searches would reveal that NRIA Fund directors Salzano and Scutaro had previously been cited by the Federal Trade Commission (FTC) for committing consumer fraud. as directors of a company known as NorVergence. The FTC has permanently prohibited Salzano from engaging in similar fraudulent conduct in the future. Later, in March 2021, Salzano was arrested on a criminal charge alleging that he used a false term sheet in 2019 in an attempt to induce an investor to increase his investment in one of the NRIA Fund’s real estate ventures. .
“Ending dishonest and predatory behavior”
“The rules aren’t complicated: If you sell securities in New Jersey, you must comply with our securities laws,” said Cari Fais, acting director of the Consumer Affairs Division. “These sponsors lured investors into New Jersey and across the country with empty promises and, in some cases, went to great lengths to cover up their own fraudulent conduct. The action we have taken today aims to put an end to their dishonest and predatory behavior once and for all.
“The conduct described in today’s filing is egregious. It is the very kind of conduct that undermines public confidence in our financial institutions and, ultimately, in investing,” said Amy G Kopleton, acting director of the Securities and Exchange Office said, “These respondents presented investors with a securities opportunity that sounded too good to be true, and it was.”
In addition to the so-called “billion dollar plus” real estate development venture, the NRIA has also invested up to a quarter of all investor funds in commercial mortgage-backed securities, the bulk of which was below investment grade, otherwise known as junk bonds, in an effort to generate returns it had promised investors but was unable to do so through the NRIA Fund real estate projects .
The Bureau found that the NRIA also leveraged junk bonds through repurchase agreements with financial institutions. This use of repurchase transactions to create leverage significantly increased the risk of the junk commercial mortgage-backed securities portfolio for investors in the NRIA fund, but the risk was never disclosed to them.
The NRIA and the NRIA Fund have both filed for Chapter 11 bankruptcy.
The Bureau of Securities investigation was led by Chief Enforcement Richard Szuch and Investigator Irwin Slotnick. The Bureau is represented by Assistant Attorney General Brian McDonough and Deputy Attorneys General Victoria Manning, Michael Eleneski and Alex Schmidt of the Securities Fraud Prosecution Section of the Division of Affirmative Civil Enforcement Practice Group. right.
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