Man sentenced for resort Ponzi scheme
The 49-year-old pleaded guilty five years ago to conspiracy to commit mail fraud in U.S.
A Flamborough man has been sentenced to two years in California prison for his role in a Ponzi scheme involving vacation resorts in the Dominican Republic.
Derek Elliott, 49, had pleaded guilty nearly five years ago to conspiracy to commit mail fraud after reaching a plea agreement with prosecutors.
Since then, Elliott has been co-operating with the San Francisco district attorney and providing evidence against James Catledge, one of the co-accused in the Ponzi scheme.
Catledge has been described as an “investment guru” who was a significant donor to the U.S. Republican party, as well as to the failed presidential campaigns of Mitt Romney and John McCain.
Elliott’s sentencing brings to a close a case that has dragged on for seven years since the charges were first laid in 2012.
A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors.
Elliott grew up in Carlisle and attended Balaclava Public School and Waterdown District High School.
He worked in the restaurant business and real estate before joining forces with his father, Frederick, who had begun developing properties in the Dominican Republic in the late 1980s.
Their first resort, the Sun Village Resort & Spa, was located in Cofresi, just north of Puerto Plata’s city centre.
In late 2004, the Elliotts purchased an abandoned Sheraton hotel on the beachfront in Juan Dolio, about 40 kilometres east of Santo Domingo, the capital, on the country’s south shore.
The plan was to turn the former 268-room Sheraton into a high-end resort.
According to court documents, investors in the Dominican vacation resort purchased a product which was essentially a timeshare arrangement for the resort property.
The investors were told the product should provide them a guaranteed annual rate of return of seven to 10 per cent, paid quarterly, over a minimum period of five years.
At a later point, the investors were given the option of converting their timeshare arrangement to a fractional ownership structure, which would eliminate the requirement for the quarterly payments.
Instead, according to the prosecution, nearly $70 million (U.S.) of investors’ money was illegally diverted to commissions and other projects.
The two Dominican properties have since been foreclosed upon and were sold at auction.
In a related Florida civil lawsuit, investors alleged some of their money was diverted to purchase such things as a $520,000 yacht, a $300,000 motor home and a plane, as well as to pay off more than $1 million of Derek Elliott’s gambling debts and bankroll two Hollywood movies.
During their time trying to develop the Dominican properties, the Elliotts met Catledge, a salesperson who ran a multilevel marketing firm in the U.S., and he offered to sell timeshares at Elliott’s resort.
The problem, the U.S. district attorney said, was Elliott and Catledge were taking out more money in commissions than could be paid out to investors.
At one point, Elliott’s chief financial officer (CFO) sounded the alarm that the project was in danger of collapsing. The CFO was co-operating with the investigation.
After the charges were laid, however, the CFO died of a heart attack. Without him available to testify, the prosecution’s case was in jeopardy.
Prior to sentencing, the district attorney recommended leniency for Elliott, stating it was his detailed evidence that helped send Catledge to prison.
In 2018, Catledge pleaded guilty to one count of mail fraud and was sentenced to five years in prison.
The district attorney noted Elliott was a “model citizen” while the trial was ongoing. As a Canadian living in Canada, he could have resisted extradition but he “agreed to co-operate with the government, and did so by waiving extradition from Canada and pleading guilty here in 2014.”
The district attorney stated Elliott provided key evidence, including email exchanges with Catledge.
“He spent hours upon hours proffering about his crimes and becoming the primary witness regarding the fraud,” the district attorney stated. “While Elliott ultimately did not have to testify at a trial, he was fully prepared to do so and his testimony would have been devastating.
“Quite simply, without Elliott’s co-operation, this case may not have been able to continue,” according to the sentencing submission made by the district attorney for the Northern District of California.
Elliott was also placed on three years of supervised release once his prison term ends and he’s been ordered to pay restitution to victims of the scheme.
In 2010, before criminal charges were laid, about 200 angry investors attended a meeting with Elliott at the Mohawk Inn in Campbellville, Ont., where they learned their investments were gone.