Investors 'stuck' high and dry in WexTrust fraud case

When the dividend check he expected in April didn't arrive, Tim Moore made repeated phone calls to WexTrust Capital's offices in Norfolk and Chicago. The check eventually came, but it bounced.

When Moore asked WexTrust to return his $140,000 investment, employees offered excuses for the bounced check but never returned his money, the Moyock, N.C., resident said.

As conditions at the Chicago-based company unraveled earlier this year, Moore and hundreds of other investors suddenly came up short. The losses have forced some, including Moore, to make painful financial choices.

The Securities and Exchange Commission charged in August that WexTrust and two of its owners operated a Ponzi-type scheme by promising unusually high returns to earlier investors and paying them with money raised from later investors like Moore. The two owners are Joseph Shereshevsky of Norfolk and Steven Byers of Oak Brook, Ill.

The SEC case, filed in federal court in Manhattan, alleged that WexTrust and the two men defrauded investors by diverting at least $100 million to unauthorized uses.

In response to the SEC's request, the court ordered that the assets of WexTrust as well as Byers and Shereshevsky, and his wife, Elka, be frozen. The court also appointed a receiver to track down and safeguard the assets.

The receiver, Timothy Coleman, has cautioned WexTrust investors not to expect any payments from their investments in 2008. In fact, it's possible that resolving the case and returning funds to their rightful owners could take years, said Coleman, a Washington attorney, last week.

That's not good news for Moore and others who relied on income from their WexTrust investments to pay everyday expenses. When he and his wife put money into the company's high-yield loan fund in December, they counted on using the investment's dividend income to help make their monthly mortgage payment of $3,600, Moore said.

With their investment missing and without any of the income they expected, the couple used up $25,000 in savings and have increasing difficulty paying their mortgage, said Moore, a medical-equipment repair technician at Chesapeake Regional Medical Center. He and his wife, who have a 3-year-old son, have cut back on groceries and use credit cards to cover routine expenses, he said.

"If I could move on, that would be great, but I'm stuck, and the stress is unbelievable," Moore said.

In response to the SEC allegations, Shereshevsky denied any wrongdoing and asked that the case be dismissed. Shereshevsky contended that he relied on the assurances of another WexTrust owner, Amnon Cohen, that the company's investments were operated in a lawful manner and in the best interests of investors.

Shereshevsky and Byers, WexTrust's chairman, also have been charged with securities fraud in a separate criminal case brought by the U.S. Attorney for the Southern District of New York. Shereshevsky, who is being held in a federal detention center in Brooklyn, and Byers, who is free on bond, are awaiting indictment.

In Hampton Roads, WexTrust attracted investors by cultivating trust and promising better-than-average returns. Within the region's Orthodox Jewish community, Shereshevsky gained respect for his charitable endeavors and generosity to members of the B'nai Israel congregation in Norfolk. To help raise funds, he hired members of the Jewish community for sales positions at WexTrust. These employees, in turn, solicited funds from relatives and friends.

Other investors said they went to WexTrust on the advice of individuals outside the company whom they trusted. Moore said he was looking to safely invest $140,000 when he sought help from a radio commentator and former mortgage broker he had known for 10 years. Moore said he trusted the radio commentator, Paul Clemmons, because Clemmons had put some of his own money into WexTrust investments.

At WexTrust, employees suggested that Moore invest in the company's high-yield loan fund, which generated hefty annual returns of 14 to 16 percent by lending to businesses in need of short-term "bridge" loans.

These loans might have involved higher-than-normal risk, Moore acknowledged, but WexTrust employees insisted that "nobody had lost a dime" from the fund, he said. After talking with others who had put money into the fund, Moore decided to do the same.

Vivian Orgel said she thought she did sufficient research by seeking information about WexTrust and Shereshevsky on the Internet and from reading the company's investment documents. The documents, she said, didn't disclose that Shereshevsky had pleaded guilty in 2003 to bank fraud, something that came to light in the government's suits against him.

Orgel met Shereshevsky on an AirTran flight from New York to Newport News. They were seated next to each other and struck up a conversation.

"I mentioned that my biggest dream was to start a radio show" that would address health-care issues, said Orgel, a Norfolk resident. Shereshevsky, who was accompanied by his wife and a son, replied that "he was with a company that was very successful and that he could help me."

Orgel, who later met with Shereshevsky at WexTrust's office in Dominion Tower, said he played a video about a diamond-mining venture in South Africa. During their 45-minute conversation, Orgel recalled, he told her that the mines "are doing very well and would do even better" in the future.

After doing more homework, she invested in the mining venture and in an apartment project in Houston, said Orgel, 56. She declined to say how much she put into the investments but estimated that they generated about $90,000 of income over three and a half years. That income, she said, enabled her to pursue freelance writing and charitable activities.

But when the monthly checks from WexTrust stopped coming in the spring, she had to scramble to find additional work, said Orgel, a native of Canada who grew up on Long Island, N.Y. She said she sold much of her jewelry and cut back sharply on her living expenses.

"I'm not a high spender," Orgel said, but "I was stopped in my tracks."

Hoping to recover at least part of what they've put into WexTrust deals, scores of investors have banded together to monitor the receiver's actions and the case against the firm.

Within days of the SEC filing, Virginia Beach resident Patti Robertson was contacting other investors and suggesting that they share what they know. To do that, she helped organize a Google chat room.

Robertson said she has contacted 400 WexTrust investors, including several in Florida, New York, Pennsylvania and Nevada.

"I don't like to sit back and let things happen to me," said Robertson, who operates Jackson Hewitt tax-preparation offices, Great Clips hair-cutting shops and Homevestor sales offices with her husband.

On the advice of a neighbor, she and her husband visited WexTrust three years ago because they wanted to diversify their investments, Robertson said. The couple put money into three of the company's real estate projects, its diamond-mining venture in Africa and a fund promoted as something having the safety of a savings account. She declined to say how much they invested.

For now, Robertson and other investors have focused their attention on the activities of Coleman, the court-appointed receiver. One challenge facing Coleman and his team of lawyers and accountants is tracking down and recovering assets, especially from those diamond mines in southern Africa.

A manager at one mining company refused to cooperate when the receiver sought records in September. Earlier this month, the company, Pure Africa Holdings Ltd., provided a few documents, and Coleman's representatives on its board are seeking others, according to the receiver's Web page.

One of WexTrust's U.S. investments, a Chicago hotel, has been sold, but the crippled condition of the credit markets and investor wariness of commercial real estate could complicate the disposition of other properties, Coleman said.

Another challenge will involve unwinding the investor funds raised for specific projects that the SEC contends were diverted to other uses. WexTrust, according to the SEC, conducted at least 60 securities offerings and then formed 150 entities to buy commercial real estate and other investments.

Coleman said he expects file an interim report on or before Nov. 11 that addresses the financial condition of WexTrust's entities and extent to which funds were commingled. His findings could alleviate fears among some investors that the receiver's team will run up hefty legal bills, cutting into the assets that will be available for distribution.

Moore's trusted adviser, Clemmons, said he expects to recover much of what he put into a warehouse, a hotel and other WexTrust real-estate deals. Clemmons, who recommended WexTrust to investors and helped some refinance their homes to raise investment funds, said he, too, borrowed on his home to invest. Because of the lost income, he sold his home in July and refinanced an investment property.

"I've gone from home ownership to renting, and I got rid of my toys," including a $130,000 Mercedes-Benz and a boat, Clemmons said.

Moore figures that whatever he recovers will come too late to help save his house. Earlier this month, he and his wife put it on the market for $595,000 but have yet to hear from any prospective buyers.

Moore said he already asked their mortgage lender, "Should I give it back now?"

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