The Old Bait and Switcheroo

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Business accounting concept, Business man using calculator with computer laptop, budget and loan paper in office.

The “Bait and Switch” sales tactic has been around for a long time. It’s commonly used to attract someone to a good deal, then the customer ends up with something else, usually for a higher price. (While the customer doesn’t get what they originally wanted, they usually get something. But, the seller gets a good deal – usually a lot of money.) The developer of a Palm Beach, Florida hotel pulled the old “Bait and Switcheroo” tactic on foreign investors who were interested in gaining a green card in exchange for investing at least $500,000 in his $40 million condo-hotel project. The foreign investors were left with nothing but disappointment until the developer and his wife recently pleaded guilty to tax fraud.

 

The developer launched the scam by soliciting EB-5 investment in 2012. (EB-5 is a federal program that allows foreign investors to obtain a green card in exchange for investing at least $500,000 in a U.S. business and creating at least 10 jobs.) Investors were lured by the promise that the project would be completed in under a year and that their money would be protected in an escrow bank account. They were also assured that an advisory board would be formed including many famous people to include Donald Trump, Bill Clinton and Celine Dion. (But, as you might guess, there was no advisory board and the developer and his wife spent much of the $40 million on credit card debts plus two properties in Connecticut.)

 

In all, approximately 80 EB-5 investors – mostly from China and Iran – kissed their $500,000 investments and green cards goodbye. When foreign investors found out that they had been duped, 44 disgruntled people filed a lawsuit claiming that the real estate developer misled them into investing in the project. (I’ll say.)

 

The developer pleaded guilty to money laundering and tax fraud charges. His wife also pleaded guilty to tax fraud. (They neglected to pay their taxes for two tax years because they didn’t want to reveal to the Internal Revenue Service that they made about $40 million through their scam.)

 

The developer from Palm Beach, Florida is facing a maximum of 45 years behind bars when sentenced. His wife, an actress, is facing five years in jail at sentencing. The developer’s brother pleaded guilty to conspiracy to commit wire fraud and the contractor on the project pleaded guilty to conspiracy to commit bank fraud and illegal monetary transactions. (Folks – this house of fraud is going down.)

It appears that this is not the only controversy surrounding this popular Palm Beach couple. Unfortunately, the investment opportunity is no longer available as the old hotel at the center of this fraud case has been sold to another property company. (Let’s hope that the 80 initial EB-5 investors will get justice when these two are sentenced, but until that time their pockets remain empty.)

 

Today’s “Fraud of the Day” is based on an article, EB-5 developer in Palm Beach pleads guilty to money laundering and tax evasion charges,” published by The Real Deal on April 25, 2019.

 

Robert Matthews, the developer of the Palm House Hotel, pleaded guilty on Thursday in federal court to money laundering and tax evasion charges for defrauding foreign EB-5 investors in the Palm Beach condo-hotel project.

 

Matthew’s wife Maria “Mia” Matthews also pleaded guilty Thursday to tax evasion in federal court in Bridgeport, Connecticut.

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Larry Benson
Larry Benson is currently the Director of Strategic Alliances for Revenue Discovery and Recovery at LexisNexis Risk Solutions. In this role, Benson is responsible for developing partnerships for the tax and revenue and child support enforcement verticals. He focuses on embedded companies that have a need for third-party analytics to enhance their current offerings.