The Secaucus-based National Realty Investment Advisors (NRIA) has been issued a cease and desist by the New Jersey Bureau of Securities after they determined $630 million in securities fraud between 2018 and 2022.
By John Heinis/Hudson County View
“The fraudulent conduct identified by our Bureau of Securities in this case is striking. Today, we are taking action to stop their unlawful conduct and to put the public on notice,” Acting Attorney General Matthew Platkin said in a statement.
“If an investment opportunity promising high guaranteed returns sounds too good to be true, it usually is.”
Their fraud involved selling securities – in the form of membership units in a real estate investment fund known as the NRIA Fund – to at least 1,800 investors across the country, including 380 investors in New Jersey, according to the 63-page summary cease and desist order.
In addition to NRIA, the entities named in the Bureau’s order are: NRIA Partners Portfolio Fund I, LLC (“the NRIA Fund”), NRIA Capital Partners, Inc., and NRIA Structured Credit Strategies, LLC.
The company principals named in the order include Thomas Nicholas Salzano, of Secaucus, who was a senior independent executive advisor and portfolio manager of the NRIA Fund, who was charged with wire fraud and aggravated identity theft by the U.S. Attorney’s Office in March 2021.
The others named are Rey Grabato, of Hoboken, president of the NRIA Fund and 80 percent owner of NRIA; D. Coley O’Brien, of Southampton, NY, co-CIO of the NRIA Fund and 100 percent owner of NRIA Capital Partners; and Arthur Scutaro, of Bloomfield, executive vice-president of project management and advisor to the NRIA Fund.
Back in April 2021, a whistleblower alleged fraud at NRIA, specifically that they were perpetuating a Ponzi/pyramid scheme, in the midst of a U.S. Securities and Exchange Commission (SEC) probe, as HCV first reported.
According to the Bureau’s order, NRIA and its principals touted the NRIA Fund as a billion-dollar-plus real estate development enterprise focused on the “ground-up” development of townhomes, condominium complexes, luxury residences, and mixed-use rental developments.
NRIA claimed the fund involved the opportunistic purchase of land or property at below-market value prices, which would then be developed for sale at a large profit.
To entice would-be investors, the company used a nationwide advertising campaign that included radio spots and high-profile messaging on billboards located at the entrance to the Lincoln and Holland Tunnels.
The billboard messaging guaranteed returns of 12 percent on the investments, with the added possibility of obtaining returns as high as 21 percent.
However, the bureau found multiple violations of the anti-fraud provisions of the New Jersey Uniform Securities Law, including employing a scheme to defraud, making untrue statements of material fact, and omitting material facts in connection with the sale of NRIA Fund securities.
“Respondents also charged the NRIA Fund an annual development fee that was at times as high as 4.5% of the overall value of any given project,” the order says.
“Respondents failed to disclose that collecting and recognizing the development fee at the outset of the project property flew in the face of standard business practices and was in violation of Generally Accepted Accounting Principles.”
The order further states that this “grossly inflated NRIA’s income,” which O’Brien recognized and warned Salzano and others about, since the development fees did not have long-term sustainability.
As part of their scheme to enrich themselves at investors’ expense, the Bureau found that the principals named in today’s filing used millions of investor dollars to make lavish payments to family members – including a salary paid to Salzano’s wife for a no-show job.
The principals also hired family-owned or controlled companies, including a construction firm where Salzano’s son was the chief financial officer, and companies owned by Grabato’s relatives that were used to create imposter entities and websites.
The imposter entities and websites were aimed at reducing the chance that internet searches would reveal that NRIA Fund principals – Salzano and Scutaro – had previously been cited by the Federal Trade Commission (FTC) for engaging in consumer fraud as principals of a company known as NorVergence.
The FTC permanently enjoined Salzano from similar fraudulent conduct in the future.
Despite his federal case, HCV reported in May 2021 that Salzano was still privy to company business after speaking confidentially to an FBI cooperating witness, information confirmed in the cease and desist order.
“Although Grabato, Scutaro, O’Brien and other members of NRIA management were aware in early 2019 that Salzano had attempted to defraud the investor through a forgery, they allowed Salzano to continue wielding control over the NRIA Fund without firing him or disclosing his criminal conduct to investors,” they wrote.
Furthermore, the bureau found that NRIA also leveraged the junk bonds through repurchase agreements with financial institutions.
This use of repurchase transactions to create leverage significantly increased the risk of the junk commercial mortgage-backed securities portfolio to the NRIA Fund investors, but the risk was never disclosed to them.
Both NRIA and the NRIA Fund have initiated Chapter 11 bankruptcy proceedings.