By Steve Buist
METROLAND WEST MEDIA GROUP
A Flamborough man alleged to be part of a Ponzi scheme involving vacation resorts in the Dominican Republic is now facing four fraud charges in a California court following a lengthy FBI investigation.
Derek Elliott, 42, is charged with one count of conspiracy and three counts of mail fraud in connection with $163 million in investments made by 1,200 Canadian and American investors who believed they were buying ownership stakes in two resorts near Puerto Plata and Santo Domingo.
The U.S. District Attorney in San Francisco alleges that the investors were defrauded out of $91 million in the scheme.
Also charged along with Elliott is James Catledge of Nevada, described as an “investment guru” and a significant donor to the U.S. Republican party and the failed presidential campaigns of Mitt Romney and John McCain.
If convicted, Elliott and Catledge each face up to 20 years in prison as well as fines up to twice the value of the alleged fraud.
The FBI’s investigation was triggered by a Miami judge who had been presiding over a civil lawsuit that had been launched against Elliott and his companies three years ago by disgruntled investors in the Dominican Republic resorts.
Judge Alan Gold became so concerned about possible criminal activity having taken place that he issued an order in February 2010 stating he was contacting a long list of law enforcement and regulatory agencies in Canada and the United States, including the FBI, asking them to begin criminal investigations.
Elliott’s lawyer said the situation is “more positive than it appears on the outside,” although he offered no specific reasons.
“We have a lot on the go; a lot of good things, as well,” said Chris Scott, an Orangeville lawyer. “The criminal thing is not a good thing, obviously, but it is what it is,” Scott added. “It was a grand jury (indictment) without any information from our end.”
Two years ago, in an interview with the Flamborough Review about the Florida lawsuit, Elliott denied any wrongdoing on the part of himself or his companies.
“This was never a Ponzi scheme or Ponzi-like scheme,” he said at the time.
A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors.
Elliott grew up in Carlisle and attended Balaclava Public School and Waterdown District High School.
He worked in the restaurant business and real estate before joining forces with his father, Frederick, who had begun developing properties in the Dominican Republic in the late 1980s.
Their first resort, the Sun Village Resort & Spa, was located in Cofresi, just north of Puerto Plata’s city centre.
In late 2004, the Elliotts purchased an abandoned Sheraton hotel on the beachfront in Juan Dolio, about 40 kilometres east of Santo Domingo, the capital, on the country’s south shore. The plan was to turn the former 268-room Sheraton into a high-end resort with 241 rooms.
According to court documents, investors in the Dominican vacation resorts purchased a product, which was essentially a time-share arrangement for the resort property.
The product was supposed to provide a guaranteed annual rate of return of 7 to 10 per cent, paid quarterly, over a minimum five-year period.
At a later point, the investors were given the option of converting their time-share arrangement to a fractional ownership structure, which would eliminate the requirement for the quarterly payments.
The two Dominican properties have since been foreclosed upon and were sold at auction.
In the original Florida lawsuit, investors alleged some of their money was diverted to purchase such things as a $520,000 yacht, a $300,000 motor home and a plane, as well as to pay off more than $1 million of Derek Elliott’s gambling debts and bankroll two Hollywood movies.
The allegations have not been proven in court and Elliott vehemently denied all of the allegations in a 2010 interview with the Flamborough Review.
“We’ve had an impeccable reputation,” Elliott said then. “My father and I are very trustworthy people.”