SEC Complaint Accuses Palm Beach Businessmen with Securities Fraud
The Securities and Exchange Commission has filed an eight-count civil complaint against Palm Beach real estate developer Robert Matthews and another businessman, Joseph Walsh, Sr., accusing them of securities fraud for misusing millions of dollars solicited from foreign investors for the long-troubled Palm House hotel-condominium project in Palm Beach. The complaint, filed in U.S. District Court for the Southern District of Florida, demands restitution and monetary penalties.
Matthews bought the Palm House property in 2006, and the project has been mired for years in a web of legal troubles, including lawsuits, foreclosure proceedings and code violations. Once promoted as an ultra-luxury hotel-condo, the Palm House building stands unfinished after construction ceased in 2014 in the ocean block of Royal Palm Way.
According to the complaint, the Palm House Hotel LLLP “offered and sold” at least $43.99 million in securities to at least 88 foreign investors between November 2012 and March 2015. Those investors were solicited as part of the federal EB-5 program that provides green cards to eligible foreign nationals who put at least $500,000 into U.S. construction projects that create a specified number of jobs. Under the terms of the program, those investors can be fast-tracked for permanent residency if they meet all of the program’s qualifications.
In 2014, Matthews allegedly violated securities laws by taking $3.4 million to buy a 151-foot yacht and a piece of property adjacent to the Palm House. That same year, Matthews also directed the transfer of about $4.5 million to buy his former house in Connecticut out of foreclosure and for other “related expenses,” according to the complaint. “Matthews then extracted $1.2 million from the Connecticut home through a business purpose loan secured by the property, from which he and his family received $825,000,” the complaint says.
Read the full SEC Complaint here: Securities and Exchange Commission v. Palm House Hotel LLLP, et. al.
The SEC action follows the arrest of Matthews and his Palm Beach real estate attorney, Leslie R. Evans, at their homes on the island by federal marshals on March 15 after an indictment was issued out of the District of Connecticut. The indictment alleges that Matthews, Evans and others defrauded EB-5 investors and others by making materially false misrepresentations. As part of the alleged scheme, Matthews, Evans and others moved investor funds through various bank accounts located in Connecticut and Florida. The funds were used to pay Matthews’ credit card debts, to assist in Matthews’ purchase of a 151-foot yacht, and to purchase two properties located in Washington Depot, Connecticut. One of the Washington Depot properties was a property that Matthews had previously lost in foreclosure. Matthews, Evans and others conspired to purchase the property out of foreclosure by concealing both the relationship between the co-conspirators, and the source of the funds used to purchase the property.
The indictment charges Matthews with eight counts of wire fraud, and offense that carries a maximum term of imprisonment of 20 years, one count of bank fraud, an offense that carries a maximum term of imprisonment of 30 years, one count of conspiracy to commit bank fraud and wire fraud, an offense that carries a maximum term of imprisonment of 30 years, and 10 counts of illegal monetary transactions, an offense that carries a maximum term of imprisonment of 10 years.
Read the DOJ Press Release here: Indictment Alleges Florida Developer and Real Estate Attorney Scammed Foreign Investors
Trial in the criminal case is expected to start no sooner than September 4.
Matthews is also named as a defendant in a federal civil suit filed in November 2016 by 63 Palm House investors in the Southern District of Florida that contained allegations — many similar to the ones detailed in the SEC complaint — made by Palm House investors from China, Iran and Turkey, who alleged they were defrauded out of $50 million after investing through the EB-5 program. That lawsuit is ongoing.