Rezny to pay up to $862,000 to settle fraud suit
Landlord suspected of running real estate Ponzi scheme
Nicholas Rezny, the landlord who city officials believe may be running a Ponzi scheme, is able to leave the state again — though the price of his passport out of Wisconsin is between $200,000 and $862,063, according to court records and Rezny.
Rezny must pay $862,063 to Jay and Nancy Patel, an Indiana couple who charged that Rezny scammed them out of more than $1 million, according to a judgment filed in Milwaukee County Circuit Court on Tuesday.
Rezny’s wife, Emma Rezny, and some companies Nicholas Rezny controls are responsible for portions of the total judgment. The agreement between Rezny and the Patels states that $200,000 of the judgment would cover attorney fees and costs.
As part of the agreement, the Patels dropped their lawsuit charging Rezny with securities fraud for running a Ponzi scheme used to fuel his Milwaukee real
estate empire. Also dropped is a court order banning Rezny from leaving the state, according to an agreement between Rezny and the Patels filed this week.
Circuit Judge Marshall Murray issued the travel ban Jan. 23 after the Patels’ lawyer feared Rezny and his wife were spending so much money on travel they would not be able to pay damages being sought by the Patels.
Those damages actually paid by Rezny could turn out to be less than a quarter of the $862,063 judgment.
Rezny, the boastful 34-year old, said Tuesday there is another agreement — this one not filed publicly — that states if he pays $200,000 to the Patels by March 30, he is off the hook for the remainder of the judgment.
Benjamin Glicksman, the Patels’ attorney, declined to comment on the nonpublic agreement. Rezny “caused significant harm to the Patels,” Glicksman said.
Rezny’s attorney, Michael Heller, confirmed there was a private agreement but he declined to disclose the details of it.
“It’s true that we have an agreement where Nick would pay a more favorable dollar amount (than the $862,063) and then the judgment will be vacated,” Heller said, adding “it’s in poor taste to stir the pot at this stage of the litigation.”
Rezny originally agreed to send a copy of the nonpublic agreement to a reporter, but after talking to Heller decided not to. Sources confirmed the $200,000 figure was correct.
Even the $200,000 amount could be a difficult payment for Rezny, who says he owns or manages about 225 rental units in Milwaukee.
Rezny, who one year ago bragged to the Journal Sentinel “I went from being a broke stand-up comic to a millionaire in just over a year,” is no longer able to get bank financing because of litigation he is involved in, Heller said in a Jan. 23 hearing.
In addition to the Patels, Rezny is being sued by or is suing at least four other investors, including his uncle, Greg Dahlman, who said he invested $260,000 with Rezny’s operation.
“As far as income for Mr. Rezny goes, he is not making really much of anything coming from any of his properties right now,” Heller told Murray at the hearing. “He is making income by way of medical research studies.”
That is, “he will travel to a research facility and he will be (an) inpatient for 21 days and he leaves and they give him a check for nine grand. So that is the source of his income currently,” Heller said.
The attorney explained that as a human guinea pig, Rezny receives “trial drugs for thyroid or antibiotics, things of that nature.”
If Rezny fails to make the $200,000 payment, then he, his wife and some of the limited liability companies linked to him would be liable for the full $862,063.
If the group does not make payment, the Patels could seek to seize assets from the Reznys or the related limited liability companies named in the lawsuit.
The travel ban against Rezny and the settlement agreements all came after Murray last month ruled that Rezny had committed securities fraud in his dealings with the Patels.
Among other things, Rezny failed to disclose that a state regulatory order had been issued against him and that he used $50,000 in earnest money given to him by the Patels to cover a debt that was unrelated to their investment.
Other investors suing Rezny said he also failed to disclose the order, known as a cease and desist order, before they agreed to invest in his real estate ventures.
The Patels, who also charged Rezny with breach of contract, argued that his method of raising money from investors in order to buy properties was really a Ponzi scheme, an argument that has been echoed by the City Attorney’s Office.
Under the umbrella of his American Community Re-Development Group LLC and dozens of limited liability companies, Rezny has said he uses money raised from investors to purchase and rehabilitate properties that his investors own through various LLCs. Rezny remains an investor in the LLCs
The City Attorney’s Office has urged local, state and federal law enforcement agencies to investigate Rezny’s operation, though none have done so.
City Attorney Grant Langley, Deputy City Attorney Adam Stephens and Assistant City Attorney Heather Hough wrote in a 2016 letter that Rezny “may be engaged in criminal conduct regarding interstate securities fraud involving real estate located in the City of Milwaukee.”
The letter went on to say:
“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. The nature of these transactions seems to be akin to a mortgage ‘Ponzi scheme.’ “
Rezny has repeatedly denied any wrongdoing.