Internal e-mails show doubts of legality of firm's offerings

NORFOLK

The former rabbi of B'nai Israel synagogue in Ghent went to work a few years ago in Tennessee for WexTrust Capital, the investment firm now charged, along with one of the synagogue's members, with a massive investment fraud that targeted Orthodox Jews.

Norfolk resident Joseph Shereshevsky, the former chief operating officer of WexTrust and head of its Norfolk office, lavished the community with his generosity, building trust and raising money for the firm's investments.

But on Monday, the Securities and Exchange Commission charged Chicago-based WexTrust, Shereshevsky and the firm's chairman, Steven Byers of Oak Brook, Ill., with bilking investors out of $100 million in what it called a large-scale affinity fraud.

Shereshevsky is being held without bond after a hearing Wednesday in which a federal magistrate in Norfolk deemed him a flight risk.

B'nai Israel's current rabbi reacted Friday to a Wall Street Journal story about the charges against Shereshevsky and his ties to the community by firing a letter off to the newspaper saying his comments had been misconstrued. The story gave the impression that Rabbi Chaim Silver assured members of the synagogue that Shereshevsky was trustworthy.

In Silver's letter to The Journal, posted on vosizneias.com, a Web site that gathers news of interest to the Orthodox community, he said that he told Shereshevsky and potential investors on many occasions that he didn't give business advice because he has little expertise in that area.

"Our community is devastated by the charges against Mr. Shereshevsky and the unwanted publicity it has brought on our synagogue," Silver said in the letter. "We hope all persons of faith will pray for us as we deal with the damage this matter has caused, both for our congregation and for those who lost money."

The scrutiny of Shereshevsky and concerns about his alleged victims come amid emerging evidence that the former WexTrust officer may have repeatedly disregarded securities laws.

In a bitter exchange of e-mails, another WexTrust officer accused Shereshevsky of raising $9 million for one of the firm's real-estate offerings by distributing phony documents to prospective investors.

"Guys from enron got 20 years for doing that," wrote Amnon Cohen, the fellow WexTrust officer, referring to fraudulent practices that came to light at the defunct energy-trading company Enron Corp. in Houston.

"Think of all your investors all the guys from Norfolk that invested with u, all the wealth that you accumulated all down the drain," Cohen wrote in a Nov. 16, 2007, e-mail, which the SEC has submitted as part of its case against WexTrust in federal court in New York City. "What will your investors think when they know you played with their money while you took home $3,000,000 a year in salary and spend $1,000 a night in hotel suites?"

In an exchange of e-mails the previous day, Shereshevsky told Cohen that he was "rich enough today that I can do what I want."

"I have invested my money very well the last 3 years," he said. "I accumulated several million dollars. I don't need wextrust any more... "

During Shereshevsky's bond hearing in Norfolk's federal court, his attorney Andrew Sacks said that the bearded 52-year-old Shereshevsky lacked a business background and wasn't aware of any fraudulent activity at WexTrust.

"He was the fundraiser," Sacks said. "He was not the accountant. He was not the one who kept the books."

Herbert Zukerman, a member of the B'nai Israel congregation and president of Zukerman & Associates, the Virginia Beach accounting firm that prepared Shereshevsky's personal tax returns, said he found the SEC's allegations unsettling.

"If you find out that someone has not been honest with you, it is disturbing," he said.

Zukerman said he invested in two WexTrust offerings, an income fund and a mixed-use building near Chicago with apartments and office space. Both, he said, appeared to be performing as the investment documents described.

The roster of WexTrust investors extended well beyond the Orthodox community. A handful of Hampton Roads residents said last week that they were referred to the firm by the host of a weekly radio talk show on real estate investing.

Paul Clemmons, a former mortgage lender in Chesapeake who goes by the nickname "Crunchman," estimated Saturday that 62 listeners who came to him ended up investing with WexTrust.

Clemmons said he began referring people to WexTrust after the Chicago-based firm contacted him in October 2004. WexTrust later sponsored his radio show for four months, he said, but he didn't collect any fees or commissions from WexTrust for his referrals.

He did put some of his own money into the firm's investments after talking with Shereshevsky and others. One involved a hotel and another a diamond mine. Clemmons, who declined to say how much he invested with WexTrust, said the company stopped sending him dividend checks in February. The firm, he said, initially blamed accounting problems and later attributed the lapse in payments to a slower national economy.

"We were all surprised and in a way embarrassed," he said of WexTrust's difficulties, "but we did our due diligence, and there was so sign of trouble."

Tom Shean, (757) 446-2379, tom.shean@pilotonline.com