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 New Jersey may be the Garden State, but one of its chief crops apparently
continues to be corrupt politicians and civic leaders. Thursday, federal officials arrested 44 people, including three local mayors and five rabbis in one of the largest corruption sting operations in state history.The arrests were made following a two-year sting operation, at the center of which was real-estate-and construction-magnate-convicted-of bank-fraud-turned-informant Solomon Dwek. Dwek should be no stranger to readers of The Deal magazine. We covered the implosion of his empire and also wrote a lengthy feature on Dwek's unraveling. In fact, the article by bankruptcy reporter John Blakeley may be the most complete profile of Solomon Dwek out there. At the time, we wondered why Dwek wasn't already behind bars serving time. Now we know. If the mayors of Hoboken, Secaucus and Ridgefield had just subscribed to The Deal magazine, this could have all been avoided. Here is the original feature. For more on Dwek's bankruptcy woes, including details on his most prominent bankruptcy filings, visit The Deal's Pipeline (subscription required). - Tom Groppe From The Deal magazine, originally posted 07:24 AM EDT, Oct-26-2007 by John Blakeley Solomon Dwek wasn't yet 35 years old, but he lived like a king, having amassed a half-a-billion-dollar real estate empire in Monmouth and Ocean counties along the New Jersey shore. So when a teller at the PNC Bank NA branch in Eatontown, N.J., saw him pull his familiar black Lexus by her drive-through window on the afternoon of April 24, 2006, nothing seemed amiss, even after he passed her a $25.2 million check. Dwek wanted to deposit the check, which was written from an account closed six months earlier, into one that was still open. But when the teller told him the account was closed, the bearded son of an Ocean Township, N.J., rabbi assured her that he had reopened it through PNC's corporate office earlier that day in the expectation of an imminent wire transfer. Because PNC's policy is to make funds immediately available to customers when money is transferred between accounts, the teller took the check and put it into the open account. The next day, Dwek transferred $22.79 million from that account, sending $20.2 million of it to HSBC Bank NA to pay off a loan. And what of the wire transfer Dwek had promised? It never arrived. Today Dwek finds himself in the middle of a complex, contentious bankruptcy that involves a series of his corporate entities, more than 70 debtors, two major banks, the Syrian-Jewish community of Ocean Township and a Chapter 11 trustee who has more than 350 properties to sell and roughly $400 million in claims to deal with. The kicker: The trustee is paying Dwek, who faces bank fraud charges, $15,000 a month to help him sort out the mess. Dwek's exploitation of some large banks' permissive policies is only part of the story. He also took advantage of members of the close-knit Syrian-Jewish community in his hometown who trusted him out of respect for his father and because Dwek himself was hailed as a successful businessman. "I don't believe there was one person who gave him money that was not a member of [his] community," says the Chapter 11 trustee, Charles A. Stanziale Jr. of McElroy, Deutsch, Mulvaney & Carpenter LLP. "They didn't question him, and some of these people were getting returns on their money for a while." As shrewd as Dwek could be, he was found out after he tried the same wire-transfer scheme at another PNC branch later that April day. PNC denied the second transaction, and when the bank called Dwek to inquire about when to expect the promised wire transfer, a man calling himself Dwek's lawyer assured PNC the money was on its way. The man wasn't a lawyer at all, but Dwek's childhood friend, Joseph Kohen. And again, no funds were ever wired. (In March, Kohen admitted to his role in Dwek's scheme and pleaded guilty to bank fraud.) At 3 p.m., April 25, 2006, after realizing it hadn't received funds to cover Dwek's deposit, PNC requested HSBC return the $20.2 million "sent in error." HSBC refused, and PNC sued. It also went after Dwek, filing a complaint against him in the Chancery Division of the New Jersey Superior Court in Monmouth County on May 3. (Days later, the FBI filed a similar complaint against Dwek for his role in defrauding PNC.) Two weeks after PNC's lawsuit, the court appointed a "fiscal agent" to liquidate Dwek's properties and pay his creditors. Though the agent, Donald Lomurro, did manage to sell about 20 Dwek-owned properties for about $31 million, according to court records, many creditors were displeased with the nine-month receivership. "The perceived problem at the time was that the state court was not equipped to handle what was in essence a bankruptcy proceeding," says Stephen M. Packman of Archer & Greiner PC, counsel to Washington Mutual Inc., one of the creditors that would later force Dwek into involuntary Chapter 7. "The scope of what a [bankruptcy] trustee can do ranges a lot further than that of a fiscal agent." Complicating matters, Dwek transferred to his uncle, Joseph Dwek, about 40 limited-liability corporations in a company called Yeshuah LLC and more than 120 properties before a chancery court injunction could freeze his assets, court records show. One attorney in the case says Dwek's uncle demanded the properties, for no consideration, one day before the court's action. "One big issue that was never cleared up [in the state court] was who was entitled to the proceeds of these sales, Uncle Joey or [creditors with liens on] the LLCs?," says the attorney. "These issues were not as defined as they are in the Bankruptcy Code." Packman adds: "We needed to bring some structure to the proceedings." As a result, WaMu, PNC and another creditor, Four Star Builders LLC, filed an involuntary Chapter 7 petition against Dwek in the U.S. Bankruptcy Court for the District of New Jersey in Trenton on Feb. 9 and requested a trustee immediately be appointed. Four days later, Dwek converted the bankruptcy to a voluntary Chapter 11 and placed three entities -- 10 Neptune LLC, SEM Realty Associates LLC and Deal Golf LLC -- under court protection. HSBC, meanwhile, called the appointment of a Chapter 11 trustee "premature and unwarranted" and asked that Lomurro remain for the duration of the bankruptcy. But Judge Kathryn C. Ferguson of the Trenton court thought that would leave Dwek with too much control over his assets. "Dwek cannot be permitted to have control over any of the assets of the estate," she said during the first hearing in the bankruptcy case. "The allegations of fraud and misfeasance, while apparently not yet reduced to judgment or conviction, are so wide and deep as to compel that conclusion." In fact, HSBC was alone in its opposition to a Chapter 11 trustee, which, since the funds were received within a year of the bankruptcy, had the power to go after the bank for the $20 million it received from Dwek. HSBC's lawyer, David N. Ravin of Wolff & Samson PC, declines comment, but Ferguson appointed Stanziale as Chapter 11 trustee of all the Dwek-related bankruptcies on March 2. And while Stanziale won't discuss whether he plans to file a formal complaint against HSBC, he does expect to seek four or five "serious" lawsuits within the next two months. "I know that the trustee has been assessing and investigating his claims against all sorts of creditors," says the counsel to the official committee of unsecured creditors, Walter J. Greenhalgh of Duane Morris LLP. "He could either intervene in the pending action [between PNC and HSBC] or institute his own complaint against various parties." That's not all Stanziale is juggling. Since his appointment, he's put 71 Dwek-owned companies into bankruptcy separately. Many of them are just holding companies for multiple properties. As a result, Dwek has more than 350 properties to sell. "I had to make a policy decision that every one of these LLCs had to come under its own Chapter 11," explains Stanziale. "I couldn't administer this estate where I'm Dwek's trustee and he's the majority or sole member of another LLC [not in bankruptcy]. I had no authority over there, no ability to stay creditors. ... I didn't have the authority to sell free and clear of liens. I had to get all of the LLCs under the [bankruptcy] court's umbrella." Stanziale also got back the properties Dwek transferred to his uncle and wife. He says Ferguson will decide whether Joseph Dwek is entitled to a recovery once those properties are sold. Selling large numbers of properties isn't uncommon in New Jersey these days. Bankrupt Kara Homes Inc., a New Jersey homebuilder, has spent the better part of the year selling off residential properties piecemeal. And Stanziale has already showed his resourcefulness, renting out some Dwek-owned beach properties on the Jersey Shore last summer. But the sheer number of properties isn't Stanziale's only obstacle. Most of them are also bleeding cash. As a result, Stanziale is taking bids for the properties with an income value over their mortgage, while banks will likely credit bids for the properties worth less than their liens, most of which are residential. "By the end of [October] we'll have a substantial number of properties keyed up for stalking-horse bids," he says. "The sale of properties is priority No. 1, and I hope to have it completed by the first quarter of next year. The litigation will be ongoing." Indeed, "it will be a number of years" before everything is worked out, says one attorney in the case. But that's where the real money could be. Greenhalgh, the unsecured creditors' attorney, says his clients could receive some of money from the real estate sales, but "the largest percentage" of a final recovery would probably come from litigation proceeds. Stanziale won't want for litigation targets. For starters, he says he needs to sort out which creditors are true creditors and which are investors -- a substantial difference as far as the U.S. Bankruptcy Code is concerned. Investors have a lower priority than true creditors in bankruptcy proceedings and sometimes don't realize any type of recovery at all. "A lot of these people claim to be creditors, but it's a question to me whether those people are investors or creditors," Stanziale says. "I believe many are investors. We're going to find out who is who." Then there's PNC and HSBC. Stanziale wouldn't comment, but some attorneys involved in the case believe HSBC could be the target of a fraudulent conveyance suit because Dwek paid it with money obtained by defrauding PNC. But PNC isn't innocent, either. After all, PNC maintained "possibly the most liberal funds availability practices in the banking industry," according to HSBC, which conducted a limited discovery of the bank in state court proceedings. That practice made PNC ripe for Dwek to rip it off. Consider that in six years of doing business with Dwek, the bank allowed him and his companies to run negative balances, sometimes as much as $500,000, more than 80 times, according to bankruptcy court records. PNC allowed Dwek to do this, it seems, because every time Dwek ran a negative balance, the bank would charge him a lucrative prime plus 600 basis points. Moreover, while acknowledging in an internal policy memo that it "had no legal recourse if a wire transfer is sent fraudulently," PNC nevertheless allowed Dwek to drive up and deposit a huge check from a closed account. The memo, which was produced in chancery court proceedings, warned PNC employees that "wire transfers are irrevocable." (Counsel for PNC, Peter A. Forgosh at Day Pitney LLP, didn't return calls.) But Dwek didn't bamboozle PNC alone. Sovereign Bancorp "loaned" Dwek $2 million in 2000 and is now trying to recoup it through the bankruptcy court. The $2 million loan was technically for one Jack Agjmi, but a lawsuit filed against Sovereign by his widow, Rachel, alleges that Dwek forged her and her deceased husband's signature on the loan. In fact, Rachel Agjmi didn't learn about the loan until six years later, in June 2006, when she discovered that a $1.5 million mortgage had been taken out on her house in 2000 to secure the loan, according to her lawsuit. passel of like lawsuits, chronicling similar schemes from 2000 to just weeks before his fateful visit to PNC, await Dwek. But Dwek didn't just exploit banks to amass his real estate empire. There were hometown folks as well. For example, Dwek stole at least $3.7 million from Jack Hakim; Dwek had borrowed from Hakim twice before, repaying him each time. Dwek even sold Hakim's house for him. But that was before September 2005, when Hakim loaned Dwek $2.6 million through his company, AJH Investments Inc., to purchase a property in Neptune, N.J. As part of their agreement, Dwek was to put up $2.6 million himself and flip the property for $5.9 million, netting both men $350,000 profit. But the buyer Dwek found for the property, Colonial Health Inc., was phony, and the signatures on the contract were fake. Dwek, in fact, had already purchased the property through one of his entities, 10 Neptune LLC, for $4.35 million and even took out a $3.2 million mortgage on it, court records show. Hakim never got his $2.6 million back and was never repaid a $1.1 million loan he made to Dwek. Other such capers are also the subject of lawsuits. On April 12, 2006, just weeks before the PNC scam, Dwek called Charles Ishay with an offer to co-purchase the Deal Golf & Country Club. Both men would invest $5 million, and Dwek would take out a $20 million loan to make up the $30 million bid. On the same day, without ever signing a contract, Ishay wired Dwek $5 million, court records show. But the golf club's board wasn't selling the property, and Dwek never obtained a loan. Days after learning about Dwek's "emergent and rapidly unfolding criminal and financial swindle and that he had been sued by PNC for fraud," Ishay called Dwek to get his money. Dwek refused, claiming to be "overwhelmed" by his legal troubles," according to Ishay's lawsuit. For all of that, the victims may have difficulty bringing Dwek to justice. "There's very little paper in these transactions," says Stanziale. "These people did things on a handshake a lot of the times." Stranger yet is that Stanziale is using Dwek to help sell his properties. Dwek isn't contrite about it, either. In June, he asked Ferguson to approve almost $30,000 a month in living expenses. Dwek, who is married with five children, is allowed a reasonable cost-of-living stipend as a debtor-in-possession, but felt he was entitled to what amounts to a $360,000 annual salary because he would provide a "valued" service to the estate. "This knowledge as it relates to more than 350 properties cannot be delegated to any of the other professionals that the trustee has retained," Dwek said in court papers. Creditors weren't amused when Dwek documented what he wanted: thousands of dollars a month on life insurance premiums, maintenance of five luxury vehicles and travel to a vacation home in Aventura, Fla., and the Phoenician resort in Arizona. "It is through the very same estate assets that the debtor procured through fraud that he now seeks to finance his lavish expenses," the unsecured creditors' committee said in an objection to Dwek's request. "Duped by the debtor, investors and creditors have involuntarily financed [Dwek's] lifestyle long enough and should not be compelled to do so any longer." Ferguson eventually allowed Dwek a $15,000-per-month stipend for living expenses, but the debtor must seek court approval every three months for an extension. Greenhalgh says the committee is negotiating with Dwek to withdraw its objection, which would allow him his compensation without quarterly court approval. "Now, granted, $15,000 is more than a stipend, but this guy has been cooperating," says Stanziale. "[Dwek's] a very smart guy, and sometimes I think he's got a photographic memory. He's got this information that would be impossible to retrace from whatever records he kept." Fortunately for the banks he defrauded, they've got records of their own. WaMu said in court filings that it's owed more than $22 million. Packman, WaMu's attorney, says the bank's claim is a result of more than 20 commercial and residential loans to Dwek and his wife over the years. In total, Dwek owes banks -- PNC, HSBC, WaMu, Sovereign, Amboy National Bank, Yardville National Bancorp, Columbia Bank and Valley National Bancorp, among many others -- more than $200 million. And that's not counting the $160 million or so he is alleged to owe individual creditors like Hakim and Ishay, and others. In other words, it's a very deep mine. How could Dwek have perpetuated such massive chicanery? "Hindsight is 20/20," says a creditor attorney, echoing others. "What you realize now is a history of lending for buying and selling properties over a number of years where there was a great reliance [upon information and records] that were supplied by Dwek, as well as his stature in his community," says Greenhalgh. "When it all unraveled, it unraveled quickly."
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Interesting. I've fallen in love with a beautiful piece of luxury Arizona real estate in Tucson, the neighborhood is called The Residences at Dove Mountain.