Guilty Plea in $50 Million Ponzi Scheme

A Detroit man who was the chief executive of what authorities are calling a $50 million Ponzi scheme has agreed to plead guilty for his role in the scheme.  Richard Trabulsy, of Northville, Michigan, will enter a guilty plea to  a single count of wire fraud, and will also agree to cooperate with prosecutors in their ongoing case against John Bravata and his son, Antonio Bravata.  In exchange for the plea deal, prosecutors have agreed to drop charges of conspiracy, securities fraud, and money laundering.  Wire fraud carries a maximum sentence of twenty years in federal prison, along with up to a $250,000 fine.  Trabulsy may also be ordered to pay restitution to defrauded investors.

According to authorities, the defendants operated BBC Equities, LLC ("BBC") and Bravata Financial Group, LLC ("Bravata Financial").  According to Bravata, BBC stands for "Billionaire Boys Club."  BBC and Bravata Financial were marketed to potential investors as successful real estate investment funds.  In the beginning, Defendants sought investments from family and friends.  After raising $3 million, Defendants then began hosting "free lunch" seminars for senior citizens, who were told that their purchase of membership interests in BBC would be used to purchase various forms of real estate.  Investors were provided with offering materials, including private placement memoranda outlining the proposed use of investor funds.  BBC advertised to potential investors in Forbes magazine in December 2008, and also operated a website extolling the benefits of an investment in BBC or Bravata Financial.  In return for their investment, BBC promised annual returns of 12%, which were then reduced to 8% after investors expressed skepticism that 12% seemed "too good to be true."  In total, over $50 million was raised from approximately 440 investors.

However, instead of operating a successful real estate investment fund, authorities allege that the defendants orchestrated a massive Ponzi scheme that survived only through the soliciting of new investors.  Nearly $25 million was used to perpetrate the Ponzi scheme, leaving approximately $21 million for BBC to invest in real estate.  Of the real estate purchased, much was extremely leveraged, and mortgages on these properties exceeded $128 million at the time the fraud was uncovered.  Additional funds were used to fund an extravagant lifestyle for the Bravatas and Trabulsy, with purchases ranging from luxury vehicles to vacations to artwork.  Additionally, authorities allege that neither the Defendants nor their two funds were registered with the Securities and Exchange Commission.  

The Securities and Exchange Commission also filed a complaint against the defendants, BBC, and Bravata Financial in July 2009, alleging various violations of federal securities laws and seeking relief including permanent injunctions, disgorgement, and civil monetary penalties.  

Trabulsy is scheduled to be sentenced in January 2012.  John and Antonio Bravata remain charged with conspiracy to commit mail and wire fraud, securities fraud, money laundering, and aiding and abetting wire fraud. 

A copy of the SEC Complaint is here.

A Receiver has been appointed to recover assets for defrauded investors.  A copy of his second interim report is here.