Cay Clubs finance exec Schwarz sentenced to 40 years

A federal judge handed a sentence of 40 years in prison to a second executive of the failed Cay Clubs Resorts and Marinas on Thursday.

David W. Schwarz, 60, was given the four-decade sentence after his March conviction on four counts, including bank fraud and conspiracy. Chief U.S. District Judge K. Michael Moore imposed the sentence at the federal courthouse in Key West.

The judge previously granted a defense motion for a “downward variance” in sentencing, but that apparently trimmed a potential sentence of 93 years to 40 years.

Schwarz, an Orlando resident, was the chief financial officer and a one-third owner of Cay Clubs that collapsed in 2008. “Judge Moore found that the criminal conduct resulted in $303 million in fraudulent proceeds and approximately $170 million in victim losses,” the Miami U.S. Attorney’s Office said in a statement.

Schwarz’s defense attorney, Sky Smith, said after the March conviction, “We’re sure there will be an appeal.... It’s a case about complex legal regulations.”

Cay Clubs founder Fred “Dave” Clark Jr., 59, was sentenced to 40 years in prison in 2015. Clark, who owned two-thirds of Cay Clubs, currently is scheduled for release in April 2049.

“The Cay Clubs fraud was one of the most sophisticated and financially harmful fraud schemes that has ever taken place in the Florida Keys,” federal prosecutors Jerrob Duffy and James Hayes wrote in the opening sentence of an 11-page sentencing recommendation for Schwarz filed Tuesday.

“Given [Schwarz’s] role in the fraud, the large number of victims and enormous losses that resulted, and the extensive nature of the criminal conduct over many years, a substantial sentence of imprisonment should be imposed,” the statement concludes.

Beginning in 2004, the Tavernier-based Cay Clubs acquired aging resorts and apartment complexes in the Keys, Clearwater and Las Vegas, Nevada. Executives began selling individual units to buyers with the promise of turning the properties into upscale resorts that would produce steady income through short-term rentals.

Investigators and prosecutors say Cay Clubs executives began buying units and selling them to other insiders to make the units seem to skyrocket in value. Outside buyers then were enticed to buy at the higher price.

“Schwarz and Clark failed to remodel the dilapidated properties as they promised investors, while taking millions of dollars out of the company for their own benefit,” the sentencing report says. “Schwarz and Clark diverted more than $30 million in proceeds for themselves, including millions of dollars in cash transfers that were used to purchase property and other businesses, including a gold mine, a rum distillery, aircraft, and a coal-reclamation business.”

Cay Clubs, which at one point controlled 17 properties, was “a massive, complex, egregious fraud case that required [Schwarz’s] considerable accounting, tax, and financial expertise to design and implement,” the U.S. Attorney’s Office said. “Yet the defendant completely denies, and then alternatively minimizes, his role in the fraud. But [Schwarz] exercised ‘absolute control’ over the financial aspects of the Cay Clubs fraud and knew where every penny was going.”

“More than 135 individual and institution victims of the Cay Clubs fraud scheme” sent information to federal officials working on a sentencing report, prosecutors wrote. “Many of the individuals lost their life savings, had to file bankruptcy, or lost their credit, because they believed the false and fraudulent sales pitch.”

In an appeal for leniency, defense attorney Smith argued that Schwarz was following advice from Cay Clubs lawyers, and that the 2007 economic recession and dubious bank-lending practices caused the Cay Clubs failure.

“[W]idely reported and commonly-known facts about the crisis are more than sufficient to demonstrate that Schwarz’s actions did not single-handedly cause the losses suffered by real-estate purchasers, or the collapse of Cay Clubs,” the defense motion says. “Schwarz’s convictions center around two instances of bank fraud for a total loss of [about $1 million]. From this, the government extrapolates to a completely inaccurate and baseless loss calculation of over $169 million. The government is attempting to punish Schwarz for the entire Cay Clubs business...”

Two other Cay Clubs sales executives entered guilty pleas to counts of conspiracy to commit bank fraud. Barry Graham, 59, was sentenced to five years and is scheduled to be released in August 2018. Ricky Lynn Stokes, 54, received a 30-month sentence that ends later this month.

This story was originally published May 4, 2017 at 3:09 PM with the headline "Cay Clubs finance exec Schwarz sentenced to 40 years."