Two high-ranking executives of the failed Cay Clubs Resorts and Marinas firm admitted guilt to bank-fraud charges, the U.S. Attorney's Office in Miami reports.
In a Key West hearing before U.S. Magistrate Judge Lurana Snow on Monday, Fort Myers residents Barry J. Graham, 59, and Ricky Lynn Stokes, 54, each entered guilty pleas to conspiracy to commit bank fraud.
Sentencing was set for March 23, one week after the scheduled start of a fraud trial for Cay Clubs founder Fred "Dave" Clark and wife Cristal Coleman Clark, also a company executive. Federal officials have termed Cay Clubs a $300 million Ponzi scheme.
Stokes and Graham each face up to five years in federal prison and forfeiture of any assets tied to Cay Clubs.
"Graham received approximately $6.5 million and Stokes received approximately $6.2 million disbursed as real-estate commissions or referral fees from Cay Clubs' affiliated accounts during the fraud," the U.S. Attorney's Office said in a statement.
Cay Clubs acquired a network of 17 resorts in the Florida Keys, Clearwater and Las Vegas beginning in 2004 and sought to sell individual units to investors as condo-hotels.
The firm, based in the Upper Keys, collapsed in 2008 under pressure to meet financial commitments and failure to perform promised renovations. Banks and about 1,400 investors lost an estimated total of $300 million, according to court records.
"Cay Clubs would promise to develop dilapidated properties into luxury resorts, and would promise investors an upfront 'leaseback' payment of 15 to 20 percent of the [resort unit] sales price," the U.S. Attorney's Office says.
Buyers were not aware that recorded sales prices of the resort units had been "fraudulently" inflated by "insider sales" among Cay Clubs executives, prosecutors charged.
"These insider-sale prices were used on marketing materials to make it appear to investors that the Cay Clubs units were rapidly increasing in price," the statement says. "As Cay Clubs experienced financial difficulties, Graham, Stokes and others conspired to fraudulently market the Cay Clubs investment to new investors by making false and misleading statements, including by concealing Cay Clubs' failure to convert dilapidated properties into luxury resorts."
In one example cited by the U.S. Attorney's Office, "Stokes created a sales script and [computer] presentation entitled 'Retire Rich and Young in Paradise.' The sales script contained numerous false and fraudulent statements and was provided to investors...."
Graham was described as director of sales for Cay Clubs from 2004 through late 2007. Stokes worked from September 2005 to 2008 as "one of Cay Clubs' highest-producing sales agents, and was Cay Clubs' director of investor relations."
Documents posted on a federal court website Monday indicated that Stokes and Graham intended to plead not guilty, and were facing a pre-trial bond of $250,000 each.
Dave and Cristal Clark remain in federal custody until trial after being labeled as flight risks. They moved from the Keys to the Caribbean shortly after the Cay Clubs collapse.
The Clarks were arrested last summer by U.S. marshals on charges tied to postal fraud in connection with a Cayman Islands chain of pawn shops. They were later charged with crimes from the Cay Clubs operation, which prosecutors have described as turning into a Ponzi scheme.