Source: United States Attorneys General 1
A New York man pleaded guilty yesterday in the Northern District of Georgia for his role in a scheme to defraud investors in connection with two commercial real estate investments.
According to court documents, Elchonon “Elie” Schwartz, 46, of New York City, engaged in a scheme to defraud investors who sought to invest in commercial real estate through the crowdfunding commercial real estate investing website CrowdStreet Marketplace (CrowdStreet). Beginning May 2022, Schwartz solicited investments through CrowdStreet for a large commercial real estate complex in Atlanta and ultimately raised approximately $54 million from about 654 investors. Beginning in November 2022, Schwartz solicited investments again through CrowdStreet in connection with a mixed-use building in Miami Beach, Florida, and ultimately raised approximately $8.8 million from about 167 investors. In total, Schwartz raised approximately $62.8 million from investors through CrowdStreet.
As part of the investment solicitation process, Schwartz executed agreements that stated, in part, that the funds raised from CrowdStreet investors would be held in segregated bank accounts controlled by Schwartz. In the documentation provided to CrowdStreet investors, Schwartz represented that he would only use the investors’ money to fund the investment in each property and that he had a fiduciary duty to safeguard the funds and to prohibit commingling or use of the money that did not benefit each investment.
Contrary to these representations, however, Schwartz misappropriated and converted the CrowdStreet investor funds for his own use. Schwartz directed substantially all the CrowdStreet investor money into his personal bank, personal brokerage account, and accounts for unrelated commercial real estate investments he controlled. For example, Schwartz used the CrowdStreet investor funds to purchase luxury watches, to invest in stocks and options in his brokerage account, and to pay for payroll expenses for his unrelated commercial real estate businesses. Ultimately, in mid-July 2023, the two corporate entities that Schwartz had formed to receive funds from CrowdStreet investors both filed for Chapter 11 bankruptcy.
Schwartz pleaded guilty to one count of wire fraud. He is scheduled to be sentenced on May 19 and faces a maximum penalty of 20 years in prison. A sentencing hearing will be scheduled at a later date. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.
Supervisory Official Antoinette T. Bacon of the Justice Department’s Criminal Division, Acting U.S. Attorney Richard S. Moultrie Jr. for the Northern District of Georgia, and Acting Special Agent in Charge Sean Burke of the FBI Atlanta Field Office made the announcement.
The FBI Atlanta Field Office investigated the case. The U.S. Securities and Exchange Commission’s Division of Enforcement provided valuable assistance in the investigation.
Trial Attorney Matthew F. Sullivan of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Kelly Connors for the Northern District of Georgia are prosecuting the case. Former Assistant U.S. Attorneys David O’Neal and Christopher Huber for the Northern District of Georgia provided substantial assistance with the investigation and prosecution.