Beginning in 2003, Byers, Joseph Shereshevsky (a principal and the former Chief Operating Officer of WexTrust Capital) and others, raised money from investors pursuant to private placement offerings. So far so good. However - and this is the big "but" - substantial amounts of those raised funds were diverted to purposes other than those for which the investments were solicited.
For example, in one private placement, Byers and others raised approximately $9.2 million in investor funds by representing that the funds would be used to purchase and operate seven commercial properties that were leased to the United States General Services Administration ("GSA"). The private placement memorandum for that deal stated that the $9.2 million together with a mortgage of approximately $21 million would be used to purchase the seven GSA properties and cover related acquisition expenses. However, the seven GSA properties were never purchased. In furtherance of the unauthorized diversion of the investors' funds, Byers and others later agreed to make up a story that they would then tell the GSA investors regarding what happened to their investment.
On August 11,2008 Byers and Shereshevsky were arrested and charged in a criminal Complaint with defrauding investors from at least 2004. The two defendants were indicted on November 10, 2008 and charged with one count of
- securities fraud;
- conspiracy to commit securities fraud[ and
- conspiracy to commit mail fraud.
Each defendant faced a maximum of 25 years in prison and a fine of the greater of $250,000 or twice the gross gain or loss caused by their crime. The Indictment sought the forfeiture of at least $9,200,000 from the defendants.
On April 13, 2010, Byers pleaded guilty to two felony counts of securities fraud and conspiracy to commit securities fraud.
On April 11, 2011, Byers was sentenced in federal court in Manhattan to 160 months in prision, three years of supervised release, ordered to pay $7,700,630.35 in restitution and to forfeit $9.2 million in proceeds from his crimes.
On February 3, 2011, Shereshevsky pled guilty to three felony counts of conspiracy, securities fraud, and mail fraud charges.
The conspiracy count carries a maximum sentence of five years in prison, and the securities fraud and mail fraud counts each carry a maximum sentence of 20 years. Shereshevsky faces a maximum fine of $250,000, or twice the gross gain or loss from the offense on the conspiracy and mail fraud counts; a maximum fine of $5 million on the securities fraud count; and mandatory restitution to the victims of his crimes. He is awaiting sentencing.