You Can't Cheat an Honest Man - James Walsh [78]
Googel, Sisti and their investors were joined in their downward spiral by a proven loser named Frank Shuch. By most reckoning, Shuch brought the tendency for heavy larceny to the operation.
Shuch joined Colonial Realty as the result of a relationship between the company and accounting firm Arthur Andersen which had begun in 1975, when Googel and Sisti were introduced to Andersen tax partner Richard McArdle.
McArdle helped Googel and Sisti find investors—although he told them that if Colonial Realty “wanted to play in the big leagues, then it had to pay.” Andersen’s initial contributions were “unofficial.” Colonial Realty was not allowed to put the firm’s name on any of the documents it prepared. The accountants said that their involvement was best left a secret.
That came to an end in 1981, when Andersen started formally putting its name on financial documents prepared for Colonial Realty’s syndications. In exchange for the expertise, credibility and business contacts that the Andersen name provided to Colonial Realty, Googel and Sisti agreed to hire Shuch, an alleged embezzler who was the brother-in-law of an Andersen partner.
Shuch also wanted his involvement to be kept secret. Toward this shady end, he started a company called Consulting Enterprises. He performed all his work for Colonial and related entities as an employee of Consulting, for which he received in excess of $5.5 million in payments between 1986 and 1990.
Why all the secrecy? Colonial Realty sold limited partnership interests in various real estate properties located primarily in Connecticut. These investments were offered through Private Placement Memoranda (PPMs), pursuant to the exemption in the registration requirements for “privately placed” transactions.
Colonial Realty offered money-back guarantees, minimum returns of 14 percent, and projected overall returns as high as 300 percent. And the company’s offering materials contained misrepresentations and omissions about revenues, financial reserves, rental income and cash flow. It wasn’t a situation that would stand up to much scrutiny.
The cornerstone of Colonial Realty’s marketing system was a secret network of finders—lawyers, accountants, insurance agents, real estate agents and stockbrokers who were given fees in return for either recommending people to buy Colonial Realty investments or providing lists of wealthy clients.
Most of the finders were, themselves, investors in Colonial Realty projects. Generally, they were paid $1,500 for each person who bought a $50,000 investment. Most received either checks or credits on their investments; some were paid in cash.
Colonial Realty’s head bookkeeper said that Sisti and Googel kept several million dollars of cash on hand for paying finders’ fees.
This aspect of the company’s marketing system was kept secret until after the company was forced into bankruptcy in September 1990. Colonial Realty salesmen maintained that the finders did not want it known that they were getting money in return for recommending their clients, relatives or friends make investments. (Many of the payments violated federal securities laws, which prohibit anyone other than registered brokers from being paid commissions.)
In September 1990, involuntary bankruptcy proceedings were filed against Colonial Realty in federal court. Six banks that had loaned money initiated the proceedings. Investors had a total of more than $350 million in limited partnerships at the time.
In October 1990, Googel, Sisti and Shuch were indicted on federal felony charges.
Shuch killed himself in February 1992 by putting a plastic garbage bag over his head. The suicide took place in his $10 million custombuilt home.
On May 5, 1993, Googel pled guilty to two counts of wire fraud, one count of bank fraud, and one count of attempting to impede the administration of the internal revenue laws. Two weeks later, Sisti pleaded guilty to two counts