Yacht-sharing fraud leads to prison

Fort Lauderdale businessman to serve 18 months

FORT LAUDERDALE – A Fort Lauderdale businessman who once led a yacht sharing club has been sentenced to 18 months in federal prison and ordered to repay $1.289 million for his role in defrauding a dozen investors.

Andrew Deme, 52, pleaded guilty in March to one count of conspiracy to commit mail and wire fraud. At a sentencing hearing late last week in New Haven, Conn., U.S. District Judge Jeffrey A. Meyer ordered Deme to report to prison on July 12 and repay investors the money they lost, according to the U.S. Attorney’s Office in Connecticut. One victim from Connecticut lost $475,000, the government said.

Deme was president, chief executive officer and chief financial officer of Waters Club Holdings Inc., a membership-based club that could access a fleet of yachts for members to share in some of the world’s leading cruise regions.

According to the government, Deme hired two men from the New York area, Thomas Heaphy Jr. and Brian Ferraioli, to help raise money for the Waters Club. Both men recruited at least 12 investors to buy shares in the company. They pleaded guilty and were sentenced earlier this year to six years for their roles in the case and for an unrelated investment fraud scheme, according to the U.S. Attorney.

Deme and his promoters “falsely told the victim Investors that their money was being used to develop the business, and fund the operations, of Waters Club; and that the promoters were being compensated with stock, rather than commissions, for recruiting investors,” according to the government’s sentencing memorandum to the court.

“In truth, and as Mr. Deme well knew, the promoters were not compensated with shares of Waters Club stock,” prosecutors said. “Instead, approximately half [$605,204] of all money paid by the victim investors for shares of Waters Club was paid to the promoters as sales commissions.” Due in part to those payments, the company lacked the money to develop the club, and the shares acquired by investors were unsalable.

In the defense filing, Fort Lauderdale attorney Jonathan Friedman argued for house arrest, probation or a combination of both.

While acknowledging that Deme misrepresented the company’s financial condition as well as the fact that the promoters did not receive cash commissions, “the company was otherwise an ongoing legitimate business operation,” Friedman said. “Waters Club had recurring revenues, a continual flow of new customers, and guaranteed contractual business well into the year 2019.”

After a review, he said, the court would find that Waters Club “is not a fraudulent scam, scheme or entity with illegitimate goals.”

In the wake of the criminal case against Deme, Waters Club Holdings continues to operate as a charter company, according to an April 2018 filing with the Securities and Exchange Commission. The filing was signed by the new CEO, James James, a 25-year yacht industry veteran who served as general manager of Yacht Chandlers of Fort Lauderdale.

According to the filing, Deme resigned his executive posts in late 2017 and settled civil litigation brought against him by the company. Meanwhile, Waters Club raised $385,000 through a private placement for working capital.

Since then, the filing says, Waters Club entered into a charter contract with one of its yacht charter vendors and holds an option to purchase a yacht before the end of September. Due to last year’s hurricane season, the company suspended its charters in the U.S. Virgin Islands and moved them to the Bahamas.

“The company hopes to restart its Virgin Islands charter operations before the end of 2018, conditions permitting,” the filing said.

David Lyons can be reached at 954-356-4340, dvlyons@sun-sentinel.com twitter: @davidvlyons