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LCI “Partner” Scammed Millions From Venezuela
by Paul Bass | Oct 7, 2013 6:36 am
Posted to: Housing, Legal Writes
The loan document looked legit. Until Evan Trachten came to the fine print stating that the deal was subject to the laws of Broward County.
Or as the document put it, “Broward County, Connecticut.”
Florida has a Broward County. Connecticut doesn’t have a Broward County.
“That’s when I knew,” Trachten recalled, “this was a scam.”
And what a scam. It turned out to be a massive Ponzi scheme, the likes of which you rarely hear about in New Haven.
Trachten read the document in his office at New Haven City Hall’s neighborhood anti-blight agency, the Livable City Initiative (LCI). He received it from an investor in Venezuala. The investor had been calling and emailing him with increasingly concerned questions about money he’d trusted to a Venezuelan-born businessman named Juan Jose Alvarez de Lugo.
The investor and others like him from Venezuela had signed documents to invest millions of dollars with Alvarez de Lugo. Producing slick brochures, businessman Alvarez de Lugo claimed he was working with LCI and Mayor John DeStefano to buy up rundown properties in poorer New Haven neighborhoods, fix them, then have government-subsidized families live in them. He told his first batch of investors that he needed to money to build as many as 1,400 units. Alvarez de Lugo then started trying to collect another $5 million from investors back home to, he claimed, build a new housing complex for seniors at the foot of New Haven’s West Rock. He promised his backers a 20 percent return on their investments.
The investors started sending Alvarez de Lugo tens of thousands of dollars, hundreds of thousands of dollars, in 2005. At first, the investors received some payments. By 2007, the payments started coming less often. Then they stopped altogether.
Meanwhile, Alvarez de Lugo didn’t spend most of the money on building houses. He spent some of the money on partial payments to previous investors. He spent much of the money on himself and his family—on landscaping and a pool and patio he had installed at his 12-room, 4,967 square-foot home (pictured) on Branford’s Huntington Drive, on tuition payments to Hamden Hall Country Day School and the New School in New York.
LCI’s Evan Trachten helped guide his Venezuelan caller to information to piece together what was happening to their money. Eventually the case went to an FBI agent who pieced together and proved the rest.
The FBI arrested the businessman. The game was over. On Sept. 18 Alvarez de Lugo, who is 53 years old, pleaded guilty to wire fraud and signed a two-page stipulation detailing his scheme. He admitted to stealing “at least $2 million” from “more than 10 victims.” (Investors claim the number could rise as high as $5 or $6 million.) He faces up to 20 years in jail, though his sentence will probably end up considerably lower based on the terms of a plea deal with the government.
The New Haven Gold Rush
Alvarez de Lugo is not the only the developer collecting millions of dollars from international investors for plans to develop housing in low-income New Haven neighborhoods. Millions of dollars from Israel and Australia, among other places, have fueled the growth of two real-estate empires, Pike International and Mandy Management, for instance. New Haven real-estate can come relatively cheap, especially in poorer neighborhoods; the potential for profits in flipping the properties or renting them can be huge.
Alvarez de Lugo himself hasn’t been the only Venezuelan-born conduit for millions to flow into the city. A company called New Haven Redevelopers LLC has bought, renovated, and flipped dozens of homes in recent years; it is run by Venezuelan-born Juan Miguel Salas-Romer, who now lives in Guilford. (Read about some of his dealings here.) Salas-Romer has also been making money providing unconventional financing to other builders.
Alvarez de Lugo turns out to be Salas-Romer’s brother-in-law. Or he was his brother-in-law.
So said Maria Corina, Alvarez de Lugo’s now ex-wife. She told the Independent her brother and his business have had “absolutely nothing to do” with the dealings of her ex-husband. (She declined further comment. Alvarez de Lugo did not return phoned and emailed requests for comment.)
LCI’s Trachten called the episode a cautionary tale for international housing investors looking for quick, big returns in places they don’t know.
“New Haven is a quintessential college town to invest in. We have a biotech economy. We have a port. We are strategically located between Boston and New York. I could have fallen for this, too,” Trachten said in an interview in his third-floor City Hall office.
“Whether you’re investing in a condo in Acapulco while on vacation,” or sending money to some city called New Haven, “don’t take anything at face value,” he advised. “Verify. Don’t trust. Verify independently.”
Years before he began receiving calls and emails from overseas, Trachten (pictured in his office), LCI’s property acquisition and disposition manager, had actually met Alvarez de Lugo. Twice. Back in 2007. That’s when Alvarez de Lugo really did buy a property from LCI, at 21 Shelton Ave., through his development company Arquin Decoraciones LLC. He paid $50,000. He fixed up the house. He resold it 17 months later for $240,000.
Trachten remembered little about the man except that he had done what he promised with the house, and that he had a “super-digitized” “fancy” business card.
Alvarez de Lugo had been busy since he formed Arquin in 2003, based on a picture drawn from interviews and hundreds of pages of email messages and government documents. Much of the information comes from research done by FBI Special Agent Ronald R. Henderson Jr., LCI’s Trachten, and a duped investor from Venezuelan. The duped investor (who asked to remain unnamed in this article; let’s call him “the investor”) forwarded $300,000 to Alvarez de Lugo in 2006. For 13 months he received promised payments, so his brother invested $60,000 of his own, and his mother another $250,000. When they eventually all learned they’d been had, the investor contacted Trachten, then contacted other duped investors and dived into public records to amass a file on the case.
After forming his LLC, Alvarez de Lugo began meeting with people back he knew in Venezuela who could afford five- and six-figure investments. He prepared a brochure that touted his close ties with New Haven’s LCI, and plans to buy and fix up to 1,400 homes.
“We basically all knew each other through personal relationships in Caracas,” the duped investor stated in an email message to the Independent.
Meanwhile, Alvarez de Lugo hired a lawyer to file a successful “petition for a non-immigrant worker” with the federal government, seeking a temporary worker visa. (The lawyer, Michael Boyle, said last week he can’t comment on the case without his client’s permission.)
Alvarez de Lugo opened accounts at the Bank of Southern Connecticut (which was recently bought by Liberty Bank). He earned a seat on the bank board.
He drew up scores of promissory notes (like the one at left) for his investors. He sought investments ranging from $25,000 to $500,000. He promised 20 percent returns.
“This promissory note shall, in all respects, be governed by and construed in accordance with the laws of BROWARD COUNTY, CONNECTICUT,” the notes read. Since the county doesn’t exist in Connecticut, the documents are not legally enforceable.
In his pitches, Alvarez de Lugo told investors “that the restoration projects in which they were investing were sponsored by the City of New Haven and even mentioned Mayor John DeStefano, Jr. by name,” according to a court filing by FBI Special Agent Henderson.
Alvarez de Lugo did end up buying and trading seven properties in town. He spent around $700,000 of the millions raised, according to the FBI.
He promised to build a six-unit condo complex on one vacant lot on Fairmont Street. He even got approval from the City Plan Commission for the plan. A Hamden architect named M.J. (Peg) Chambers worked with him and represented him before City Plan. He then dropped out of sight and never developed the project, Chambers said in an interview last week.
“He never followed through. It was hard” to reach him, she said. “I suspected he was doing it to gain an advantage with immigration and naturalization.”
In addition to spending investors’ money on himself, Alvarez de Lugo did mail payments to some of the original investors, at first. It turned out he was using money received from new investors to make those payments. He would draw the money out of the same accounts he had deposited the original money into for the alleged purpose of developing housing.
By 2008, the checks had stopped coming. On May 28, Alvarez de Lugo wrote a letter to explain.
“I want to apologize for my delay,” he wrote.
He offered an explanation: His company encountered a delay in obtaining an investor/broker license.
“As of right now I am unsure when this will be resolved, I informed [sic] that it could take anywhere between one week to three months.
“I have decided to personally take matters into my own hands ... We will contact you with further information of the payments details that will be made to you on a timely matter [sic].
“In this case, I want to assure you that your capital is completely safe. I am sorry for all of the inconveniences that this delay could be causing you.”
A Visit To Whalley
Meanwhile, Alvarez de Lugo was preparing a second project to sell to investors from European countries: a senior housing project to be built by wetlands down a steep slope (pictured) off Whalley Avenue, by the foot of West Rock.
That project really did exist—on paper. A series of developers have been trying for years to build there; officials recent shot down requests for permission to build.
And Alvarez de Lugo did contact the owners in 2008 seeking to buy the land. He hired a lawyer to go before the City Plan Commission for permission to become the new owner for the project and formally seek the needed zoning approvals.
He never ended up buying the 1155 Whalley Ave. property. The same Maryland developer who owned the property back then owns it today and continues to seek public approval for construction.
Though he didn’t buy the property, Alvarez de Lugo did put together a 25-page brochure marketing the investment to his Venezuelan contacts. (He listed the address as “Whitney Avenue, West Ville in New Haven,” without a street number, rather than Whalley Avenue in Westville.) He sought an initial total investment of $3.5 million. He raised $2 million, according to a filing by FBI Special Agent Henderson.
Pressed for an address for the project by one investor, Alvarez de Lugo gave a fake one: “1081 Whitney Ave.” (That property is actually in Hamden.)
By 2010, worried about his money, but not yet sure he’d been had, the Venezuelan investor traveled to New Haven. He met with Alvarez de Lugo. He asked Alvarez de Lugo to show him some of the properties. Alvarez de Lugo drove the investor around town and showed him homes and vacant land he said he’d bought with the money. All seemed well.
But the checks didn’t resume coming. The Venezuelan researched the properties and learned that Alvarez de Lugo didn’t appear to own them.
That’s when the Venezuelan found Evan Trachten at LCI.
“Way Bigger Than The City”
He started emailing Trachten in 2011 seeking help. Trachten remembered the interactions with Alvarez de Lugo around the 2007 Shelton Ave., sale, but that was it. He assured the investors that LCI had no relationship with the builder, that no big projects had been underway.
Trachten’s interest was piqued. In subsequent months he maintained a correspondence with the Venezuelan and explored public records himself. He asked the Venezuelan to send him documents from his transactions with Alvarez de Lugo.
That’s when he got a look at the promissory notes bound by the laws of “Broward County, Connecticut.”
“The second I saw that, I said, ‘That’s unenforceable,’” Trachten recalled. “I said, ‘Guys, there’s no Broward County, Connecticut.”
The investor, who by then had made a mission of investigating the scheme, asked Trachten whom to contact for redress.
“I said, ‘Guys, this is way bigger than the city. This is an international thing.”
Trachten sent them to the FBI, and Agent Henderson was on his way.
Henderson based his eventual filing on the experiences of six “investor-victims” including the Venezuelan. Henderson traced their original investments, the transfers of money Alvarez de Lugo made from accounts in New Haven to Florida, and the money spent on Alvarez de Lugo’s home and tuition payments. The amount documented in Henderson’s filing comes to $2 million.
The Venezuelan investor said he has tracked down far more.
“If you add all the testimonies in the file the figure is in excess of US $5,000,000,” he stated in an email message to the Independent. “Please keep in mind that several victims did not come forward with their testimonies for various reasons so the final unknown figure is higher.”
A federal judge is scheduled to sentence Alvarez de Lugo on Dec. 11. As part of his plea deal with the government, prosecutors will seek a prison sentence of between 41 and 51 months. Alvarez de Lugo has also agreed to make restitution to his victims. Assuming the money can be found, that may be one promise he chooses to keep.
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The Salas-Romer family may be trying to distance itself from Alvarez de Lugo now, but he was their representative on the Southern Connecticut Bancorp board until Juan Salas-Romer took it over and at least one of his companies, Arquin Decoraciones LLC, has done business with Salas-Romer’s New Haven Redevelopers LLC.
Salas-Romer has been described in SEC filings as running his family’s financial affairs, and someone needs to report on them as well: his father and brother are former governors of the Venezuelan state of Carabobo and have been the subject of numerous corruption probes, including a parliamentary inquiry that began last year over missing state funds in Carabobo and a 2013 criminal drug-money-laundering investigation that has already resulted in the arrest of a long-time employee of a family company.
Some of the details are online at http://www.WhoIsJuanSalasRomer.com but there’s a lot more digging that needs to be done.