New York Real Estate Development Is Center of Fraud Scheme

Offering fraud cases are one of the most typical types of schemes used by those seeking to raise capital through a fraudulent scheme. The most recent action based on this type of scheme is also one of the most popular. Here Defendants told investors that they proposed to develop a parcel of Manhattan real estate that would generate profits for investors. The proposal drew investors who provided $6 million to the schemers. While the scheme sounded plausible those in charge apparently made little effort to carry through with the plan – they simply stole the investor money. SEC v. Schuster, Civil Action No. 25 Civ. 3800 (S.D.N.Y. Filed May 7, 2025).

Named as defendants are: Joshua Schuster, a resident of Boca Raton, Florida; and Schuster Enterprises LLC (d/b/a Silverback) a New Yor real estate development company organized in February in February 2016. The firm is owned by Defendant Schuster and his family.

The focus of the action is the sale of interests in Schuster Enterprise and the theft of the resulting funds. Beginning in August 2018, the firm’s shares were sold to investors by Mr. Schuster. The sales pitch focused on selling interests in limited liability companies. Each was suppose to develop high-end condos located at Second Avenue, New York City.

Investors raised about $6 million. The funds, however, were not used to develop the properties. To the contrary, over $2 million was diverted to making payments for the personal benefit of Mr. Schuster. Some were also used to fund real estate projects developed by Defendants. For one Ponzi-like payments were made to investors in other projects. In connection with the proposed projects Defendants also failed to disclose certain financial information about the so-called Second Avenue Project. Despite having raised substantial sums, Defendants continued to sell interests in the claimed projects.

Defendants attempted to conceal their conduct by providing investors with periodic reports on the progress of the claimed development. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). See Lit. Rel. No. 26305 (May 7, 2025).