BASSETERRE, St, Kitts – A South Carolina man wanted by the FBI for his alleged participation in a Ponzi scheme is believed to be hiding in St. Kitts.
According to The Detroit News, US Bankruptcy Judge Raymond Ray, in a Florida court today (Mar. 23), directed the Justice Department and agencies including the US Marshals Service to find George Kastanes and his wife Teresa.
The media house stated that during a telephone interview on Tuesday (Mar. 20), the 62-year-old man said he was in St. Kitts, but claimed not to know the whereabouts of his wife.
The situation that led to the Kastaneses being sought by US law enforcement agencies, is centered on a failed $10M Detroit pension fund investment that allegedly caused Detroit businessman Abner McWhorter to commit suicide and an international hunt for his parents, who have fled the US amid a search for the missing money.
The Detroit News stated that developments are swirling as the city’s funds cope with more than $84M in losses from failed investments that have drawn FBI scrutiny and led to an indictment against former Detroit Treasurer Jeff Beasley.
The media house quoted a trustee on the Detroit Police and Fire Pension Fund as saying, “This is what movies are made of.”
Court records and interviews chronicle the fallout from one Police and Fire Pension Fund loan in 2008 intended to buy and restore more than 1 400 foreclosed homes in Metro Detroit. Instead, many of those homes are facing foreclosure - or demolition - after McWhorter killed himself amid accusations he was involved in a Ponzi scheme that defrauded the Pension Fund.
Following his death, the Pension Fund sued McWhorter’s company and 17 related parties in 2011 and alleged that his partners, Kastanes and his wife, helped perpetrate the fraud and divert the loan.
The Kastaneses, who were featured in a 2007 Wall Street Journal article about entrepreneurs specialising in the so-called “sub-marine market”, faced a series of escalating challenges in recent months: The Pension Fund lawsuit; a $16.2M default judgment against the wife’s company; arrest warrants, bankruptcy and allegations they would flee from it all in a private plane.
The Detroit News stated that the controversy dates to January 2008 when the Pension Fund loaned $10 million to McWhorter's company, Paramount Limited, which was formed in January 2008 to borrow money and buy foreclosed mortgages.
Paramount had said it was going to use the money to buy foreclosed mortgages and resell homes.
And Police and Fire Pension Fund Chairman Sean Neary said, “The way it was presented was to revitalise residential areas in Detroit.”
As part of the deal, the media house said, McWhorter teamed up with Kastanes and his wife and the husband said that from 2008 to 2009 they had sold McWhorter’s company about 3 000 homes.
He is quoted as saying, “We received shy of $6 million and can account for all of it.” He also said that McWhorter spent $2M from the original $10M investment unaccounted for.
“There is no money left in our offices or that has gone offshore or anywhere else,” he added. “I'm broke.”
The once-promising business venture is now mired in litigation and the Pension Fund alleges that McWhorter’s company had defaulted on the loan by fall 2010.
Instead of maintaining, rehabilitating and marketing the homes, Paramount and others are accused of grossly mismanaging the real estate portfolio, failing to maintain the properties or pay property taxes, according to the Pension Fund.
Additionally, Paramount was not profitable and was repaying the loan with the Pension Fund’s own money; a classic Ponzi scheme, according to the Pension Fund’s law firm Racine & Assoc.
In May 2011, the Pension Fund sued Paramount and the Kastaneses in Wayne Circuit Court, and after the lawsuit was filed, a judge appointed a receiver to protect the thousands of homes purchased with Pension Fund cash. However, according to court records, the receiver quickly ran into obstacles.
The Pension Fund’s law firm said that Kastanes and his wife failed to turn over documents. And an FBI-trained expert who was hired to analyse computers from the Kastanes’ offices discovered 30 000 files had been shredded.
“That's a smoke screen,” Kastanes told The Detroit News. “The documents that were shredded were totally innocuous. It shouldn’t have happened, but it did.”
Meanwhile, McWhorter was under mounting legal and financial pressure.
Besides the pension lawsuit and alleged loan default, his company filed Chapter 11 bankruptcy on July 21, 2011, and on August 5 in that year the 41-year-old entrepreneur shot and killed himself inside The Commodore building near Midtown.
McWhorter’s death was ruled a suicide but, by then, the accusations and lawsuit had clouded his reputation.
Ben Gonek, an attorney representing McWhorter’s company, said it was tough to say whether the lawsuit explains why he committed suicide. “Put it this way,” he added, “It would be a huge stress factor in anyone’s life.”
Following McWhorter’s suicide, pressure continued to mount against the Kastaneses, and in November they were found in contempt of court for failing to turn over files.
On January 5, 2012, one day before the Pension Fund asked a judge to issue warrants for the couples’ arrest, the Kastanes'’filed Chapter 7 bankruptcy, which the Fund called a blatant attempt to delay the arrest warrant hearing.
However, arrest warrants were issued on the following day and the Pension Fund’s lawyer labeled the couple flight risks. She noted George Kastanes had a pilot’s license and access to a Piper Aerostar plane.
The Detroit News quoted her saying in a court filing, “They intend to flee the country and take their ill-gotten monies to a jurisdiction intended to be outside the reach of this court.”
Early this month, the couple fled ahead of a March 6 court hearing in Florida and Kastanes said the Pension Fund’s lawyer threatened them with arrest if the couple was to show up at the hearing.
Kastanes said he fled to St. Kitts because he has business ties to the island.
“We were planning to relocate here anyway,” he said. “This just accelerated things. My wife is elsewhere. She’s very upset and has health issues. I could not stand the possibility of her being incarcerated in Detroit.”
The US has an extradition treaty with St. Kitts and the Pension Fund is in the process of requesting help to find them.
According to the Detroit-based media house, Orzech, the Pension Fund trustee, wonders if some of the pension fund’s money is overseas too.
“We know they've got some money somewhere. Now we’ve got to go find it,” he is quoted as saying.
Kastanes, on the other hand, said he did not flee the US with any of the Pension Fund’s money and insists, “We’re not crooks…trust me.”
