Former CEO of Cobalt Financial Sentenced to Three Years for Real Estate Fraud
Preet Bharara, the United States Attorney for the Southern District of New York, has announced that William B. Foster, former owner, president, and chief executtive officer of Cobalt Financial Inc., has been sentenced to three years in prison on charges stemming from a fraud that raised more than $23 million from over 250 investors in private placement real estate offerings. Foster was sentenced in Manhattan federal court by U.S. District Judge Kimba M. Wood, who presided over the three-week jury trial at which Foster, along with co-defendants Mark Alan Shapiro and Irving Stitsky were found guilty. Beginning in late 2003, Foster, Shapiro and Stitsky founded a group of companies that operated under the name "Cobalt," which purportedly engaged in the acquisition and development of multi-family real estate properties throughout the United States. Through the Cobalt entities, Foster, Shapiro and Stitsky fraudulently induced victims to invest by, among other things: ►Misrepresenting Cobalt's operating history; ►Failing to inform prospective investors that Cobalt was owned and controlled by Stitsky and Shapiro, both convicted felons; and ►Misrepresenting and causing others to misrepresent Cobalt's purported ownership interests in certain properties to prospective investors. In fact, Cobalt was a new company with little or no record of real estate investment success, was managed and controlled by Stitsky and Shapiro, and did not own several of the properties that it claimed to own. In order to carry out their scheme, Foster, Shapiro and Stitsky established Cobalt’s corporate headquarters in Springfield, Mass., and a telemarketing center in Great Neck, N.Y. Foster, who worked out of Cobalt’s Massachusetts office, was identified in the Cobalt marketing materials as the individual responsible for overseeing all aspects of the operations of all of the Cobalt entities. The defendants and their employees solicited funds from investors by making false and misleading oral and written representations about the investment for which the investors’ funds were solicited, including false representations about: ►The identities and relevant background information about the individuals controlling the Cobalt entities; ►The identities of Cobalt’s business partners; ►The properties that Cobalt owned; ►The properties in which investor funds were to be invested; ►The history of the Cobalt entities; ►The amount of management fees to be taken by Cobalt entities from the investor funds; ►The uses of the management fees taken by Cobalt entities from the investor funds; and ►Shapiro's educational background. Foster, Shapiro and Stitsky then caused millions of dollars of investors’ funds to be transferred to accounts for the defendants’ personal benefit. In addition to the prison term, Judge Wood sentenced Foster of East Hampton, Mass., to three years of supervised release and ordered him to pay $22 million in restitution and to forfeit $23 million in proceeds from his offenses. Stitsky of Milan, N.Y. was sentenced to 85 years in prison on July 6, 2010. Shapiro of Avon, Conn., is scheduled to be sentenced on Oct. 14, 2010. During the sentencing proceeding, Judge Woodstated: "It is a very serious, egregious scheme that defrauded hundreds of people of their hard-earned money. Some people in fact face financial ruin. Mr. Foster was in a position of trust with respect to the investors and it is a position of trust that he abused." For more information, visit http://newyork.fbi.gov.