Regulators raise alarm over landlord’s securities sale
In a rarely seen move, state securities regulators wrote a letter to a Milwaukee County judge supporting the legal position of an Indiana couple who are suing Nicholas Rezny, the brash landlord who city officials say runs an operation that is “akin to a mortgage Ponzi scheme.”
In a Nov. 14 letter to Circuit Court Judge Marshall Murray, an attorney for the Department of Financial Institutions said that Rezny improperly sold more than $300,000 worth of securities to Jay and Nancy Patel, court records show.
The sale violated a 2013 state order
banning Rezny from selling unregistered securities, the Nov. 14 letter to Murray states. Though the letter falls short of saying Rezny violated criminal law, the 2013 order contains a warning that violation of it could result in felony charges.
“It’s unusual for a department of the state to write directly to the judge regarding matters ... that are so central to a lawsuit,” said former Milwaukee County Circuit Judge Jean DiMotto, who was on the bench for 16 years.
“It is just an unusual event,” DiMotto said. “A very unusual event.”
“Once the investigation is complete, DFI will determine what action, if any, is warranted. Options could include referral to a law enforcement agency for prosecution.” George Althoff DFI agency spokesman
Rezny is the 34-year-old braggadocios landlord who once proclaimed he was the “biggest person people haven’t heard of under the age of 40.” He has been under investigation by DFI securities regulators for at least two years.
Rezny uses a series of limited liability companies to raise millions of dollars from investors in several states, which he and the investors use to purchase Milwaukee properties that Rezny’s companies manage.
The City Attorney’s Office has urged state and federal law enforcement agencies to investigate Rezny, arguing the methods Rezny used to raise at least $4 million from investors “seem to be akin to a mortgage ‘Ponzi scheme.’ ”
“It appears that Mr. Rezny purchases properties in the name of one LLC, takes out a mortgage from a private individual or IRA then sells that property to a different Rezny LLC for a profit to pay off the mortgage,” City Attorney Grant Langley and two of his underlings wrote in a letter to state and federal law enforcement officials last year.
Rezny has repeatedly denied the allegations Rezny is also involved in several lawsuits, both as a plaintiff and defendant. In the Patel suit, the Indiana couple charge he defrauded them out of more than $1 million in four real estate deals.
Among other things, the Patels’ suit alleges that Rezny failed to pay back promissory notes, which the Patels contend were actually securities and Rezny argues were loans. The Patels note that Rezny never told them he was banned from selling unregistered securities in Wisconsin.
In her letter to Murray, Robin Jacobs, a DFI attorney supervisor, agreed that Rezny sold the couple securities.
“It is the opinion of the Division (of Securities) that the 2015 and 2016 promissory notes Rezny sold to the Patels in exchange for their investment of $330,000 and a guaranteed return of 15% are ‘notes’ and therefore securities,” Jacobs wrote.
The Jacobs letter noted that the promised returns “are far in excess of any interest rate paid by banks for deposit accounts.”
That conclusion could pose a serious problem for Rezny because he agreed in 2013 to a state order banning him from selling securities in Wisconsin unless those securities were approved by regulators.
Any “willful violation” of the 2013 order “is a criminal offense” that carries a potential felony charge, the order states.
DFI officials would not say why the department has not taken any action against Rezny.
“DFI has been investigating multiple complaints against Mr. Rezny that were received after the 2013 order was issued,” agency spokesman George Althoff said in an email. “Once the investigation is complete, DFI will determine what action, if any, is warranted. Options could include referral to a law enforcement agency for prosecution.”
Neighborhood arguments
Rezny’s activities came under increased scrutiny last year and this year after he became embroiled in several disputes with his neighbors, several of whom are politically active, on the 2000 block of N. Hi Mount Blvd.
The Journal Sentinel in May chronicled Rezny’s business operations and the numerous legal issues facing him.
The neighborhood arguments led to complaints filed with Ald. Michael Murphy and other city officials, which then prompted the investigation by the City Attorney’s Office. So far, it appears that none of the law enforcement agencies contacted by the City Attorney’s Office have opened a criminal probe.
However, in recent weeks, the officials met with the Milwaukee County district attorney’s office to urge it to open a criminal probe of Rezny, sources said.
Rezny on Monday said he was aware of the Jacobs letter and said he would contact a reporter later that day with a comment. He has not done so and has not responded to texts or phone calls seeking comment.
Benjamin Glicksman, an attorney for the Patels, said the couple’s legal team requested the DFI letter after several discussions with the state regulators.
“DFI has been monitoring this case and was interested in the securities fraud claim that we raised,” Glicksman said.