Risk & Compliance

Resort Developers Accused of $5.6M Fraud

The SEC says the developers of a complex outside of Atlanta used investor funds to pay for lavish shopping sprees.
Matthew HellerJuly 29, 2016

Three men who were not registered to sell investments have been charged with misappropriating $5.6 million from investors in a real estate project to pay for lavish shopping sprees.

The U.S. Securities and Exchange Commission said Matthew E. White, Rodney A. Zehner and Daniel J. Merandi fraudulently issued $1 billion in unsecured corporate bonds, claiming the money would be used to fund a resort and amusement park complex outside of Atlanta called “Grand Empire Palace and Resorts.”

The trio never came close to raising the funds necessary to start the project, the SEC said in a civil complaint, but pocketed the $5.6 million they did raise from investors and used it for personal purchases at Saks Fifth Avenue, Gucci, Louis Vuitton, Prada, and Versace. White allegedly spent $60,000 at a Mercedes dealership.

A Better Way to Do Ecommerce

A Better Way to Do Ecommerce

Learn how Precision Medical leveraged OneWorld to cut the cost of billing in half and added $2.5M in annual revenue.

A judge on Thursday granted the SEC’s request for an asset freeze against the defendants.

“We allege that these men stole millions of dollars from investors for personal use and orchestrated sham transactions to prop up the price of the worthless, expired bonds at the center of the fraud,” William P. Hicks, associate director of the SEC’s Atlanta regional office, said in a news release.

White and Zehner are both Atlanta real estate developers and, in 2005, conceived the plan to create a $675 million resort complex that would include a water park, conference center, 6,500-seat performing arts center, hotels, restaurants, and retail shops. Merandi, a Miami resident, later came on board as Grand Empire’s director of emerging capital markets.

After earlier attempts at funding the project failed, the developers in March 2013 issued $1 billion in corporate bonds through GEPR Trust, a shell company. According to the SEC, investor funds were supposed to be used to buy a securities portfolio, which would collateralize the bonds.

“[I]nstead of using the proceeds to collateralize the bonds … the defendants misappropriated the funds for their own personal use,” the SEC alleged.

Even though the bonds expired in November 2015, White, Zehner and Merandi have allegedly continued to seek investors to purchase the securities.