U.S. judge tosses SEC case over alleged Ponzi scheme

Tue May 13, 2014 3:42pm EDT
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By Nate Raymond

(Reuters) - Five former real estate executives do not have to face a U.S. Securities and Exchange Commission lawsuit accusing them of engaging in a $300 million Ponzi scheme, a U.S. judge has ruled, saying the agency waited too long to sue.

U.S. District Judge James King in Key West, Florida, on Monday dismissed the 2013 lawsuit against executives of the now-defunct Cay Clubs Resorts and Marinas because it was filed after a five-year statute of limitations.

"This is a case in which the SEC - the agency whose principal mission is to 'protect investors and the markets by investigating potential violations of the federal securities laws - failed to meet its serious duty to timely bring this enforcement action," King wrote.

Defense lawyers say the ruling goes further than others have, following a 2013 U.S. Supreme Court decision holding a five-year statute of limitations for the SEC to seek civil penalties begins when the fraud occurs, rather than when it is discovered.

While the Supreme Court did not reach the question of whether the statute of limitations covered injunctive relief and disgorgement, King concluded the "long-held policies and practices" underpinning the ruling required that conclusion.

A spokesman for the SEC said it was reviewing the decision.

The lawsuit was brought against Cay Club's former chief executive officer, Fred Davis Clark; the company's ex-chief accounting officer, David Schwarz; and three sales executives, Cristal Coleman, Barry Graham and Ricky Lynn Stokes.

The SEC said the executives defrauded upwards of 1,400 investors with claims they were funding the development of five-star resorts in Florida and Las Vegas.   Continued...

The seal of the U.S. Securities and Exchange Commission hangs on the wall at SEC headquarters in Washington, June 24, 2011. REUTERS/Jonathan Ernst