NJ Regulators Allege ‘Massive, Nationwide Fraud’ by Real Estate Fund

Securities regulators in New Jersey have ordered Secaucus development firm National Realty Investment Advisors to cease what they characterize as fraudulent activity, alleging that the firm misled investors while funneling millions of dollars to executives and their families.

The New Jersey Bureau of Securities said in its 63-page cease-and-desist order that NRIA had operated a “massive, nationwide securities fraud” in its handling of some $ 630 million raised from at least 1,800 investors using broadcast ads and billboards promising returns or up to 21%.

The order, issued Tuesday, comes about two weeks after NRIA’s recently appointed manager, Brian Casey, filed a Chapter 11 petition seeking bankruptcy protection.

Casey took over leadership of the company following the departure of Rey Grabato, its longtime president and chief executive, and Coley O’Brien, its former managing director.

NRIA and several subsidiaries, along with Grabato and O’Brien, are named as respondents in the order, as are Thomas Nicholas Salzano — whom regulators characterize as NRIA’s “mastermind” —and Arthur Scutaro, an NRIA vice president.

“These respondents offered investors a securities opportunity that sounded too good to be true, and it was,” Amy G. Kopleton, the agency’s acting director, said in a release.

Casey, Grabato, and Scutaro did not respond to messages seeking comment, nor did an attorney for Salzano. Contact information for O’Brien could not be found.

New Jersey law provides for further sanctions, such as monetary penalties, against the respondents named in the order, said Arthur Laby, a director at the Rutgers Center for Corporate Law and Governance, who reviewed the document.

The agency “has alleged significant misconduct,” Laby said.

NRIA told the Philadelphia Inquirer last year that it believes it has been clear in its disclosures to investors. It said it has never missed an investor payment, or been sued by an investor.

NRIA promised investors big returns from its business developing apartment, condominium, and townhouse projects in Philadelphia, northern New Jersey, Brooklyn, and Palm Beach County, Fla.

In articles last year, the Philadelphia Inquirer suggested the company was overstating the success of its projects, leading it to rely on cash from new investors to pay existing ones.

The New Jersey order alleges that NRIA failed for years to disclose that the annualized “distributions” of 6% that investors received from the company were drawn from their own capital contributions, not the firm’s business revenue.

“Respondents were simply paying investors back with the investors’ own money,” regulators wrote in the order.

The company and its principals also inadequately informed investors that as much as a quarter of their funds had been used to purchase high-yield “junk” -rated commercial-mortgage-backed securities in hopes of generating the returns that NRIA had not been realizing from its purported strategy of developing residential property for resale, according to the order.

Meanwhile, NRIA and its managers had been siphoning cash off to relatives and for personal use, regulators said.

Salzano’s wife, Olena Budinska earned more than $ 2.1 million between 2018 and 2021 “for a no-show position in which she was not employed by the NRIA fund and provided no services of value to the NRIA fund,” according to the order.

NRIA awarded millions more to companies controlled by relatives of Salzano and Scutaro, without disclosing the transactions as potential conflicts of interest, regulators said. Among them were contracts with Philadelphia-based US Construction, which is co-owned by one of Salzano’s sons, according to the order.

Budinska and an attorney for US Construction did not respond to requests for comment.

More than $ 440,000 in investor funds were also paid to two India-based companies — Ably Soft Pvt. Ltd. and FATbit Technologies — for the generation of websites aimed at blurring Salzano’s and Scutaro’s past with a defunct Newark, NJ-based telecom firm called NorVergence, regulators said.

NorVergence marketed a device called the “Matrix Box” that was supposed to enable cheap phone and internet service, but it did not work as advertised, according to a Federal Trade Commission complaint. As NorVergence’s leader, Salzano was fined $ 50 million in 2006 by the FTC for engaging in unfair and deceptive practices, two years after the company ceased business and filed for bankruptcy protection.

Scutaro had been a senior vice president at NorVergence.

FATbit created websites for a phony environmental organization, also called “Norvergence,” in order “to sanitize Salzano’s and Scutaro’s sordid past” by displacing web searches leading to information about the failed telecom firm, according to the order.

Cousins ​​of former CEO Grabato were also paid to create fake blogs using Salzano’s name “to further suppress negative links,” regulators said.

The Inquirer reported on the online disinformation campaign last year. Manish Bhalla, who identified himself in a LinkedIn profile as the chief executive of both Ably Soft and FATbit, did not respond to a message seeking comment.

NRIA’s principals had long sought to minimize Salzano’s apparent role at the firm, which he, in fact, “managed and controlled,” according to the order.

NRIA has described Salzano as holding an “independent contractor leadership role.”

Salzano was arrested by the Federal Bureau of Investigation in early 2021 over a January 2019 incident in which he allegedly used phony loan papers to try to get more money from an existing NRIA investor. Later in 2019, he attempted to secure a $ 20 million loan from

TD Bank

using another forged document, according to the order.

Salzano’s initial court date on the criminal charges surrounding the January 2019 incident has been repeatedly delayed and is currently continued until at least July 29. The Securities and Exchange Commission has also filed a civil complaint against Salzano regarding that incident.

No charges have been announced in the alleged attempt to defraud TD Bank, which declined to comment for this article.

Despite having knowledge of these fraudulent activities, other NRIA principals named in the order took no action against Salzano, while it “kept investors in the dark” about the incidents, regulators wrote.

Write to Jacob Adelman at jacob.adelman@barrons.com

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