Before his business crumbled amid allegations of fraud, Ontario entrepreneur Derek Elliott ran a luxurious but money-losing resort in the Dominican Republic that once hosted Hollywood celebrities and a Maxim magazine beauty pageant.
Now, he faces a complaint from the U.S. Securities and Exchange Commission that he and a former U.S. business associate, James Catledge, were behind an "international fraudulent scheme."
The SEC alleges that the pair sold timeshares and ownership interests in Mr. Elliott's resorts and took in more than $163-million (U.S.) from about 1,200 investors, who were "falsely" promised attractive guaranteed returns. The allegations have not been proven.
Mr. Elliott, 41, of Hillsburgh, Ont., northwest of Toronto, ran the Sun Village Resort & Spa near Puerto Plata until 2009. That's when local banks foreclosed on the property after a lawsuit filed by investors in Florida alleged he and his father, Fred, had blown investor cash on private luxuries like a small plane and gambling expenses. They denied those allegations, and the case against them got bogged down in legal wrangling before being dismissed.
The SEC's complaint, filed in federal court in Nevada on May 24, contains similar allegations about the way timeshares and ownership interests were sold to investors by Derek Elliott and Mr. Catledge, who is based near San Diego and was the head of various "multi-level marketing" companies.
In a "road show" put on for investors called "Real Estate Secrets of the Wealthy," the SEC complaint alleges, the pair falsely guaranteed quarterly payments of 8 to 12 per cent to convince investors to invest their home equity and savings in the Sun Village resort and another hotel being remodelled near Juan Dolio.
But very little of the $163-million in investors' money ended up going into the resorts, the SEC alleges. Nearly $59-million went into "exorbitant" commissions for Mr. Elliott, Mr. Catledge and their related companies, the SEC alleges.
Of the $91.2-million raised for the Juan Dolio hotel alone, the SEC alleges, Mr. Elliott spent just $8-million on construction, including $1.8-million in construction payroll. The hotel was never completed.
Investor funds for the Juan Dolio hotel were used to pay returns to previous investors in the Sun Village, the SEC alleges: "Consequently, the Elliott resorts operated as a Ponzi scheme."
Investors weren't told about the commissions, and were reassured that the first Sun Village resort was profitable even though it was losing millions of dollars a year, the SEC alleges. Investors also weren't told, according to the SEC, that Mr. Elliott and Mr. Catledge had reneged on a 2007 agreement to refund $3.4-million to Idaho investors for breaking securities laws, after an investigation by the state's department of finance.
The SEC is demanding financial penalties and that Mr. Catledge, Mr. Elliott and their companies "disgorge all ill-gotten gains."
Mr. Catledge, whom Mr. Elliott has previously blamed for the problems in Florida court documents, could not be reached for comment. Neither could a U.S. lawyer he has retained.
Mr. Elliott, who has since launched a new luxury vacation rental website called Preferred Escapes, said he had not heard about the SEC allegations when contacted by The Globe and Mail.
"I'm not aware of it, and I can't really give you a comment," he said, referring further comment to his lawyer, who could not be reached on Tuesday.