| TRENTON
– The Attorney General’s Office
today obtained a court order freezing the
assets of Gary S. Klein of Colts Neck and
his real estate company, R.E.I. Group Inc.
of Asbury Park, in connection with allegations
that they defrauded investors in the sale
of nearly $8 million in promissory notes,
Attorney General Zulima V. Farber announced.
Superior
Court Judge Alexander D. Lehrer of Monmouth
County issued the order this morning freezing
the defendants’ assets in response
to a complaint filed by the Attorney General
on behalf of the New Jersey Bureau of Securities
alleging that the defendants made false
representations about real estate investments
backing the promissory notes and misappropriated
investor funds. The state also has requested
appointment of a receiver to take possession
of any assets owned or controlled by the
defendants.
“We’ll
do everything in our power to secure restitution
for the investors who are victims of this
alleged fraud,” said Attorney General
Farber. “This asset freeze is an important
first step in recovering investor funds.”
Investors in New Jersey and Florida were
promised extraordinary rates of return and
were led to believe that their funds would
be used to purchase particular properties,
the suit alleges. In reality, Klein allegedly
diverted millions in investor funds for
his personal use and for other expenses,
including unrelated real estate ventures,
payment of other note holders, and inflated
salaries and commissions, according to the
state’s complaint.
An
investigation by the Bureau of Securities
revealed that REI Group’s real estate
assets are inadequate to back the promissory
notes, and its operating expenses far exceed
its operating revenues. The defendants allegedly
have been using money from new investors
to pay old investors, in the typical fashion
of a Ponzi scheme. The Attorney General’s
Office and Bureau of Securities worked cooperatively
with the Monmouth County Prosecutor’s
Office, which executed search warrants today
at the REI Group offices at 601 Bangs Avenue
in Asbury Park and Klein’s home on
Hambletonian Way in Colts Neck.
The
state’s suit also names Joseph Spugani
of Boca Raton, Fla., who allegedly sold
the REI Group notes; Nizar Azzam, the company’s
vice president; and a number of related
companies. Neither the promissory notes
sold by Klein and REI Group nor the agents
who sold them were registered with the Bureau
of Securities as required by state law.
“Our
investigation revealed a consistent pattern
of fraud in which investors were led to
believe they would receive huge returns
from the defendants’ real estate investment,
development and rental activities,”
said Bureau of Securities Chief Franklin
L. Widmann. “Meanwhile, Mr. Klein
allegedly diverted millions in investor
funds for his personal use, including construction
and furnishing of his luxury home in Colts
Neck.”
Agents were paid commissions to market the
promissory notes as “investment vehicles”
for investing in real estate. Investors
allegedly were promised a return of anywhere
from 12 percent to 85 percent over periods
of one to two years. Investors were told
that REI Group generates capital gains and
income through real estate investment and
development as well as rental properties.
The defendants represented on the company’s
Web site that REI Group’s “income
producing properties generate over $1.2
million of annual gross rental income”
and that “each property [of REI Group]
generates positive cash flow which is mostly
reinvested into the business.”
Typically,
Klein would raise money from investors in
connection with the purchase and development
of a specific property or properties. He
then would use a portion of the money raised
as a down payment on the property or properties,
and finance the remainder of the cost through
a commercial mortgage loan, the state’s
complaint alleges. The investor money that
was not used for the down payment allegedly
would be commingled with money raised for
other properties and used for personal expenses
or other costs, including the servicing
of existing debt and repaying other investors
who requested a return on their investments.
The
investigation was conducted for New Jersey
by Chief of Enforcement Richard Barry, Supervising
Investigator James Lane, Investigating Attorneys
Julian Leone and James Monagle and Investigator
Isaac Reyes, all of the Bureau of Securities.
Julie Yoo assisted in the investigation
by the Bureau. Deputy Attorney General Anna
Lascurain, Chief of the Securities Fraud
Prosecution Section of the Division of Law,
and Deputy Attorney General Samuel Cornish
handled the case for the Attorney General.
The
state’s complaint is posted on the
Attorney General’s Web site, linked
to this release at www.nj.gov/oag/. Investors
can telephone the Bureau of Securities at
973-504-3600, or call toll-free
from within New Jersey at 1-866-838-6240.
They also can reach the Bureau through its
Web site at www.NJSecurities.gov.
>>
R.E.I. Group
Inc. Complaint (1.53mb pdf) plug-in
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