Cay Clubs Sales Directors Get 5-Year Sentences In $300 Million Ponzi Scheme
The former sales directors of what authorities have alleged was a massive $300 million Ponzi scheme will each spend the next five years in federal prison for their role in the scheme. Barry J. Graham, 59, and Ricky Lynn Stokes were sentenced by U.S. District Judge Jose E. Martinez after previously pleading guilty to conspiracy to commit bank fraud in December 2014. Judge Martinez also ordered that the men serve a three-year term of supervised release following completion of the prison sentence. A hearing has been scheduled for May 22, 2015 to determine the amount of restitution each will owe to the defrauded victims. Graham and Stokes could have faced up to twenty years in prison.
Cay Clubs operated from 2004 to 2008, marketing the offering and sale of interests in luxury resorts to be developed nationwide. Fred Clark served as Cay Clubs' chief executive officer, while Cristal Clark was a managing member and served as the company's registered agent. Through the purported purchase of dilapidated luxury resorts and the subsequent conversion into luxuxy resorts, Cay Clubs promised investors a steady income stream that included an upfront "leaseback" payment of 15% To 20%. In total, the company was able to raise over $300 million from approximately 1,400 investors.
However, by 2006 the company lacked sufficient funds to carry through on the promises made to investors. Instead of using funds to develop and refurbish the resorts, Cay Clubs used incoming investor funds to pay "leaseback" payments to existing investors in what authorities alleged was a classic example of a Ponzi scheme. After an investigation that spanned several years, the Securities and Exchange Commission initiated a civil enforcement action in January 2013 against Cay Clubs and five of its executives, alleging that the company was nothing more than a giant Ponzi scheme. However, the litigation came to an abrupt end in May 2014 when a Miami federal judge agreed with the accused defendants that the Commission had waited too long to bring charges and dismissed the case on statute of limitations grounds.
Graham was the director of sales for Cay Clubs from 2004 through late 2007, while Stokes was initially a sales agent and the director of investor relations before he took over the director of sales position upon Graham's departure in late 2007. According to authorities, Graham and others participated in sales transactions with Cay Clubs at artificially inflated prices that were then used to convince investors of the purported profits their investment could yield. Marketing materials distributed to investors touted the rapidly increasing sales price of the units without disclosing that the transactions were not typical arms-length sales.
Fred and Cristal Clark are currently being held in a Key West detention facility after a judge determined that no bail conditions existed that could ensure the two would not flee before their June 2015 trial. The two were initially arrested earlier this summer in Central America on fraud charges stemming from their operation of an unrelated company. A subsequent indictment added fraud charges from the Clarks' operation of Cay Clubs. Stokes and Graham are expected to testify against the Clarks as a condition of their guilty pleas, while former Cay Clubs attorneys Scott Callahan and Charles Phoenix have been granted immunity by the government in exchange for their testimony.
Previous Ponzitracker coverage of the Cay Clubs Ponzi scheme is here.