The owner of a Delaware real estate company was sentenced to 51 months in prison after pleading guilty to charges he defrauded investors and operated what amounted to a Ponzi scheme.
Carl Chen, owner of Chenmax Properties Inc. and part-owner of Re/Max Sunvest Realty Co., both based in Delaware, pleaded guilty in March to wire fraud emanating out of a multi-year Ponzi scheme he orchestrated. Chen had been charged by the U.S. attorney for the District of Delaware with wire fraud involving a total of $6.4 million he collected from 1991 through 2017 from 41 investors, according to court documents filed in the U.S District Court in Delaware. He had faced a maximum of 20 years in prison.
Victims who attended the sentencing hearing detailed how Chen on several occasions solicited money from them for investment in real estate but the money was instead used to pay off other investors or for Chen’s personal expenses, according to the U.S. Attorney. U.S. District Judge Richard G. Andrews, who sentenced Chen, said the case was: “One of the most horrendous white-collar offenses that I remember seeing.”
The U.S. attorney detailed in court documents a scheme in which Chen solicited potential investors, including current and former Re/Max Sunvest clients, to invest money with him so he could buy real estate as an investment and then use those funds to pay back prior investors. “Chen generally promised investors annual returns of 10 percent to 15 percent and signed a promissory note guaranteeing each investor interest-only payments on a monthly basis until such time as he paid back the investor his or her full principal investment,” according to court documents.
By March 2013, Chen’s situation took a turn and his real estate holdings were no longer able to support the monthly interest payments owed to investors, court documents said. “As a result, contrary to what he told his investors, Chen no longer spent new investor money on real estate investments,” documents said. “Between March 2013 and October 2017, Chen only purchased one property with investor funds for $11,185.”
Rather than buying properties, Chen spent new money he received from investors to pay interest payments owed to other investors. As additional investors gave Chen money, his monthly interest obligations also increased, court documents said. By fall 2016, Chen stopped making payments to some investors and others began to demand repayment. “Chen offered excuses why he could not pay them back,” documents said. “When one investor demanded repayment, Chen offered a mortgage on his own residence in exchange for the investor not demanding immediate payment.”
A deal was struck and the investor was given a mortgage on Chen’s residence. He then made the same offer to another investor in January 2017. “In all, Chen encumbered [his residence] with six mortgages that were worth more than the total value of the home,” court documents said.
By February 2017, Chen was no longer able to attract money from investors, had monthly interest payments of $50,000 owed to prior investors and couldn’t make those payments. He tried to continue to attract investment funds, emailing one investor: “I still have a viable real estate business and my chance of paying you back is much higher with my company operating and in good standing.”
Chen filed for Chapter 7 bankruptcy in Delaware and sought to discharge $6.7 million that was lent to him by investors.