Finance officer convicted in Cay Clubs fraud case

Nearly a decade after the collapse of Cay Clubs Resorts and Marinas, a federal jury Friday convicted former finance officer and minority partner David W. Schwarz on four of eight felony counts, including two counts of bank fraud.

The federal jury in Miami delivered its verdict in four hours following nine days of court testimony and arguments. Schwarz, 60, testifed in his own defense.

“We’re not satisfied that he was convicted of anything,” defense attorney Sky Smith said Tuesday. “We’re sure there will be an appeal.... It’s a case about complex legal regulations.”

At sentencing scheduled May 1 before Chief U.S. District Judge K. Michael Moore at the Key West federal courthouse, Schwarz could be sentenced to 93 years — a potential of 30 years on each of the fraud and conspiracy counts and three years on a count of interfering with Internal Revenue Service administration. Typically, sentences are shorter than the maximum.

The jury acquitted Orlando resident Schwarz of three counts of making false statements to obtain a federally insured loan and one bank-fraud count.

Cay Clubs founder and majority partner Fred “Dave” Clark, 59, is serving a 40-year sentence after being convicted of bank-fraud and obstruction counts in 2015.

The company, based in the Florida Keys with operations in Clearwater and Las Vegas, raised more than $300 million from about 1,400 investors who purchased units in Cay Clubs developments, prosecutors said. Cay Clubs collapsed in 2008, unable to make promised resort renovations or continue paying leaseback fees to unit owners.

Prosecutors called it a Ponzi scheme.

Schwarz, listed as a one-third owner of the Cay Clubs company that employed more than 1,000 people, and Clark “began Cay Clubs in 2004 with fraudulent sales of Cay Clubs units to insiders, using money from Cay Clubs bank accounts to fund the cash to close for purchases, while obtaining mortgage financing from lending institutions,” says a Monday statement from the office of acting South Florida U.S. Attorney Benjamin G. Greenberg.

“These fraudulent sales were used in marketing materials to falsely show demand for Cay Clubs units and to inflate prices, as Cay Clubs was in reality purchasing units from itself,” the statement says. “Proceeds of these sales were diverted to Schwarz and Clark.”

“During the operation of Cay Clubs from 2004 through 2008, Schwarz and Clark diverted more than $30 million in proceeds for themselves, including millions of dollars in cash transfers that was used to purchase property and other businesses, including a gold mine, a rum distillery, aircraft, and a coal-reclamation business,” the statement says.

Under the IRS-interference count, jurors did not find Schwarz guilty on 12 of 15 listed incidents, including accusations that Schwarz under-reported his income on his tax returns.

Jurors found Schwarz guilty of three violations for submitting tax returns for 2005, 2006 and 2007 “that prevented the IRS from being aware that Dave Clark received wages during [each] tax year.”

Schwarz is the fourth Cay Clubs executive to be convicted or plead guilty to charges stemming from an operation that federal prosecutors have called a Ponzi scheme. Two others were convicted of lesser offenses but still got federal prison time.

Assistant U.S. Attorneys Jerrob Duffy and James Hayes led the Schwarz prosecution.

This story was originally published March 8, 2017 at 10:24 AM with the headline "Finance officer convicted in Cay Clubs fraud case."