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NY Real Estate Developer Pleads Guilty to $58M Fraud in Hamptons & Westchester Deals

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A fraudster in the development sector has been brought to justice after bilking victims of millions. Developer Michael D’Alessio plead guilty to using some of his development projects as a way to defraud investors and funnel some money into his own shell companies, Bisnow reports. The one count of wire fraud could land him in prison for two decades and cost him $250,000 in fines.

Crain’s New York Business reports about how the scheme had been years in the making. D’Alessio had a presence after working as the president and CEO of Michael Paul Enterprises. There were limited liability corporations that had the same names as development sites in New York metropolitan area hotspots, and D’Alessio was able to sell shares of these companies. Investors were supposed to make money from interest payments on top of the profits they would also get a cut of from sales done at the property. Allegedly, the money from investors was actually going straight into his personal accounts.

He promised monthly interest payments and shares in the profits from the property sales, but allegedly funneled those funds into his own accounts instead. D’Alessio plead guilty to one count of wire fraud, an offense that carries a maximum 20-year prison term and a $250K fine.

“In typical ponzi-like fashion, D’Alessio co-mingled over $58M of investor funds and used them to cash out early investors, cover debts, and pay his own personal gambling debts,” U.S. Attorney Geoffrey Berman said.

In order to cover up what was really going on, he lied to investors and would use their money to fill fiduciary obligations he had to other investors, according to the U.S. attorney’s office. D’Alessio also tried concealing assets so he wouldn’t look as wealthy during bankruptcy.

Ponzi schemes typically rely on more and more investors joining and pouring in money so that the schemer or schemers at the top continue to have cash flow. They can create phony documents to show things like false returns or fake companies and products in which the investors are supposedly investing. Because the fraudster or fraudsters have cash coming in from investors, they’ll have enough money to be able to pay out investors who want to cash out, which helps the fraudster or fraudsters keep the illusion alive. Once money stops flowing in, everything collapses because there was never any real economic activity happening. People were just basically handing over their money to someone at the top.

Bisnow explained how “from 2015 to this past April, according to court pleadings, he sold shares in separate limited liability companies for each project and assured investors that the funds would be used only for developing the specific LLC property. Investors were promised guaranteed monthly interest payments and returns of up to 16 percent a year and a share of profits when the property was sold. In reality, the government charged, D’Alessio channeled funds to the bank accounts of shell companies he owned and controlled.”

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