Trump Reportedly Commutes Sentence Of Convicted Mastermind Of $300 Million Ponzi Scheme

A Florida man convicted of masterminding a $300 million real estate Ponzi scheme has reportedly been released from prison after his 40-year sentence was commuted by President Trump - despite serving just five years of that term. Fred Davis Clark, aka Dave Clark, was originally arrested in Central America in mid-2014 and later convicted and sentenced for masterminding the Cay Clubs Ponzi scheme that raised over $300 million from over 1,000 investors nationwide through the purported sale of interests in luxury resorts to be developed. Although the Bureau of Prison’s website confirms that Clark was released earlier this week, details remain scarce and the White House has not released any statement. If true, this would be the first time in recent memory that a convicted Ponzi schemer has been the beneficiary of the President’s commutation or pardon power.

The Cay Clubs Scheme

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 luxury 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 was alleged to have lacked sufficient funds to carry through on the promises made to investors.  Instead of using funds to develop and refurbish the resorts, Cay Clubs allegedly 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.  

Several Trials

Just weeks after the dismissal of the Commission's action, authorities unveiled criminal charges against Fred and Cristal Clark and coordinated their arrest and extradition from Honduras and Panama where they had previously been living.  The charges stemmed from the Clarks' operation of an unrelated scheme to siphon money from their operation of a series of pawn shops throughout the Caribbean. Authorities alleged that the pair used a series of bank accounts and shell companies previously used with Cay Clubs to steal funds from the pawn shops to sustain their lavish lifestyles abroad.  Several months later, authorities filed bank fraud charges related to the Clarks' interaction with lenders as part of their operation of Cay Clubs - a strategy seemingly designed to ensure the charges would withstand any statute of limitation challenges given that bank fraud carries a 10-year statute of limitations.  

A forensic analysis conducted by the government alleged that Cay Clubs evolved into a Ponzi scheme as early as April 2005, with $2 out of every $3 paid to investors allegedly coming from existing investors.  The forensic analysis also showed that the Clarks lived lavishly, including nearly $20 million in boat purchases and expenses, $5 million in aircraft expenses, and $3 million in personal credit card bills.  Fred Clark also allegedly spent over $3 million at a Bradenton golf and country club.

After a five-week trial earlier this summer, a federal jury deliberated for four days before acquitting Cristal Clark of all charges and deadlocking on the charges against Dave Clark. Shortly after the mistrial, authorities handed down a superseding indictment that signaled a slight change in strategy.  While the previous indictment focused on the Clarks' alleged operation of a Ponzi scheme through Cay Clubs, the superseding indictment honed in on the insider transactions that were used to artificially inflate the unit prices and allegedly defraud the lending institutions.  

The new indictment alleged that Clark would identify certain family members to act as "straw borrowers for loans that were used to purchase Cay Clubs units." These straw borrowers would prepare fraudulent loan applications, which included representations about the borrower's employment and income, designed to induce lenders to approve the extension of credit.  Clark and others also allegedly prepared fraudulent HUD-1 Statements in which they certified that the borrowers had made the required down payment and cash-to-close payments when, in reality, those payments were made by a Cay Clubs entity controlled by Dave Clark.  

The retrial began November 9th and lasted four weeks, resulting in a federal jury convicting Clark on multiple charges including three counts of bank fraud, three counts of making false statements to a financial institution, and obstruction of an official investigation.  Clark was sentenced to serve 40 years in prison as well as to forfeit over $300 million. Clark made several attempts to overturn his conviction or secure a new trial, all of which were overturned. As the U.S. indicated in its opposition to one of Clark’s motions:

Defendant was extremely manipulative, non-responsive, and obstructive during his trial testimony. During his direct examination he refused to answer the questions of his own lawyer and instead continuously provided long, narrative and rambling statements...The court had to direct him on multiple occasions to answer the questions asked.

Law360 reports that Clark had an appeal pending with the U.S. Court of Appeals for the Eleventh Circuit. It remains unclear how the commutation will affect the forfeiture.

Several other individuals pleaded guilty for their role in the scheme and received varying prison sentences. One, Cay Clubs Chief Financial Officer David Schwarz, also received a 40-year prison term but recently had his sentence vacated by the Eleventh Circuit based on the trial court’s denial of Schwarz’s multiple requests for continuances. The Bureau of Prison’s website shows that Schwarz was released from prison shortly after that decision, and it remains unclear whether the government will retry him.