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Norfolk, VA - The Rabbi, the Do-Gooder, The Lost $100 Million

Published on: August 15, 2008 08:17 AM
By: The Wall Street Journal By IANTHE JEANNE DUGAN
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Joseph Shereshevsky (left) speaks to partner Steven Byers at an event in 2006.Joseph Shereshevsky (left) speaks to partner Steven Byers at an event in 2006.

Norfolk, VA - Rabbi Chaim Silver of the B’nai Israel Congregation in Norfolk, Va., says members have called him often with a question about a congregant: “Can I trust Joseph Shereshevsky? I am planning to invest a lot of money with him.”

The rabbi assured them: “He is the kindest, most generous, trustworthy man.”

Rabbi Silver and a number of Orthodox Jews were shocked by Monday’s arrest of Mr. Shereshevsky and a business partner at WexTrust Capital, a Chicago-based private-equity firm. Federal prosecutors in New York charged them with raising more than $250 million through a Ponzi scheme—mainly from Orthodox Jews. A spokesman for the firm declined to comment.

The Securities and Exchange Commission, in a civil lawsuit filed along with the criminal case, says that WexTrust diverted $100 million to run the company, cover personal expenses and pay off previous investors.

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Andrew Sacks, an attorney for Mr. Shereshevsky, says the 52-year-old former chief operating officer at WexTrust had a “knack for raising money.” But he didn’t keep the company’s books and “had no knowledge of any fraudulent activities.”

Martin J. Siegel, a lawyer representing Mr. Shereshevsky in the fraud case, said: “When the evidence comes out it is going to be clear that Mr. Shereshevsky did not intentionally commit a crime.”

Mr. Shereshevsky is being held without bail in Norfolk, where he lives. His business partner, Steven Byers, 46, of Oak Brook, Ill., was released on bail. Mr. Byers, who couldn’t be reached to comment, was WexTrust’s chief executive. Both men will be formally charged at a yet-to-be-scheduled hearing in New York.

Federal officials say WexTrust is one of the biggest “affinity” investment cases they have ever prosecuted. In these cases, firms raise money from people with similar backgrounds. Nearly 1,200 investors flocked to WexTrust, as word spread from Virginia to Chicago to the diamond dealers of Manhattan to Israel and South Africa. Much of the money came through Mr. Shereshevsky’s deep ties to the Orthodox Jewish community, prosecutors allege.

Mr. Shereshevsky is the son of a prominent rabbi named Chaim Shereshevsky, who is now deceased. Investors say they were disarmed by Mr. Shereshevsky’s faith, his endorsement by Rabbi Silver, and his reputation as a philanthropist. Mr. Shereshevsky supported medical research, schools, and made headlines by sending a private jet to Jamaica to rescue an Orthodox teen who said he was being abused at a reform school.

Using a network of mortgage brokers and salespeople, the firm also raised money from non-Jews. Tim Moore, a 39-year-old biomedical engineer in Virginia, borrowed against his home to invest $140,000 in WexTrust.

“I don’t make much money, so I worked nights for six years to raise extra money,” says Mr. Moore, who has a 3-year-old child. “Now I have to sell my dream house, or lose it, because I can’t afford the payments.”

WexTrust cobbled together about 60 “private placements”—securities that aren’t sold through public offerings, according to the SEC lawsuit filed against WexTrust on Monday, along with the criminal case by the U.S. attorney’s office. Through these investments, the firm said it was buying real estate, diamond mines and other properties.

Mr. Moore’s lawyer, John Russell Jr., says his client’s money went into a WexTrust investment that purportedly functioned like a mutual fund, channeling money into dozens of projects.

Another investor said he was drawn by Mr. Shereshevsky’s faith. This investor, a 75-year-old retired electronics entrepreneur in Ohio who invested hundreds of thousands of dollars, said he came across WexTrust shortly after the firm was formed in 2003. He heard from an acquaintance that the fund’s returns were higher than the stock market.

In marketing material, WexTrust claimed it had underwritten more than $1 billion worth of deals since 1995.

One investor in Israel said he found out about WexTrust through an “eye-catching” ad in the Jewish Press, a weekly newspaper that caters to the Orthodox community. The ad, published in the Israeli edition, depicted a person sleeping soundly, with a message conveying that investors in WexTrust could rest assured their money was safe.

Mr. Shereshevsky got attention for philanthropy. In Westchester County, N.Y., he sponsored a golf tournament last summer to raise money for cancer patients.

Last October, the principal of Norfolk’s Maury High School canceled the band’s appearance at a football game because he wanted to sell the 300 seats they would occupy. Mr. Shereshevsky bought the band’s seats for the season.

In Norfolk, Mr. Shereshevsky and his wife bought a house near the B’nai Israel synagogue. According to Rabbi Silver, nearly half the congregation’s 150 families live in that neighborhood. He had seven children and four grandchildren, and was known as kind and soft-spoken.

If someone from out of town was passing through and contacted the synagogue for a place to stay, the Shereshevskys opened their doors, Rabbi Silver says.

“He pays people’s mortgages, pays to keep loved ones in a nursing home,” Rabbi Silver says. “People trust him—and you do business with people you trust.”

Stanley and Nancy Peck, who also live in Norfolk, invested about $200,000 in a project Mr. Shereshevsky was managing. They had gotten to know him socially “when he began to mingle with the Jewish community of Norfolk,” according to a federal lawsuit they filed last November.

Mr. Shereshevsky married their niece Elka and began calling them Uncle Stanley and Aunt Nancy. But when the couple decided to invest about $200,000 in a project he was managing, it turned out to be a “disastrous failure,” the suit claims. He wasn’t named as a defendant in the case.

The SEC alleges that WexTrust funneled money from investors into its operations, personal expenses of Messrs. Shereshevsky and Byers and to pay off previous investors. In 2005, the company raised more than $9 million to buy seven properties that were leased by federal government agencies. But the properties were never purchased, the SEC claims.

Similar patterns emerged in deals raised for diamond mines, hotels and other properties, the SEC says. As of December 2007, WexTrust had borrowed at least $74 million from its private placements. “We are in debt and I am working diligently to get us out of it,” Mr. Shereshevsky wrote to a partner.

He added that every month, the company was spending $1 million more than it earned.

“We are on the verge of becoming a very strong company,” he wrote. “We have to maneuver and do things that maybe we would not do if we were cash rich.”



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Read Comments (33)  —  Post Yours »

1

 Aug 15, 2008 at 08:48 AM Anonymous Says:

its nice to be generous with other people money then everyone knows you as a nice guy.i know some people like that. here in this case i CANT judge.

2

 Aug 15, 2008 at 09:10 AM BRENTXING Says:

Eveybody loved Robbin Hood

3

 Aug 15, 2008 at 09:42 AM BEEN BURNED Says:


I (and many others) lost a LOT of money in '97 to some frum guys who said they were doing an IPO with satellite television - does anyone have any info on that scam ?

4

 Aug 15, 2008 at 09:57 AM Anonymous sara Says:

when will we learn if it is to good to be trou . don't try to get rich overnight

5

 Aug 15, 2008 at 10:08 AM Amway Says:

He seem's like a very nice guy - A kind hearted person. Let's give him the benefit of doubt. Every Jew is innocent untill proven guilty.

6

 Aug 15, 2008 at 10:11 AM Anonymous Says:

was all the money in the world billions of dollars that was lost only because the frum people ?
if not then how come the newes only reports when it happens by frum people ?

7

 Aug 15, 2008 at 10:17 AM Doyvi Says:

The rabbi assured them: “He is the kindest, most generous, trustworthy man.”

according to the Nesivos, if you relied on the rabbi you can sue him in beit din and WIN!!!!!!

8

 Aug 15, 2008 at 10:23 AM Anonymous Says:

Ther are many ways to lose alot of money quickly- I too lost over 1 million by purchasing a business-I had all due diligence done by professionals - consulted with many business men and I was still scammed- the business owners presented a model to operate the business but a few months after closing I came to realize bitterly that the model was not sustainable- besides the fact that the books were cooked- Sure I can sue and probably recover some money- but with the cost of litigating etc I probably will not go that route-
Basically many of us- myself especially are extremely naive when it comes to these matters and we are blinded by the potential of big returns-
Azoi firt the Hashgochoh-

9

 Aug 15, 2008 at 10:46 AM vildechaia Says:

Goniff! When will people learn? I am truly sorry for the people who lost money with this person, but: do your homework before investing!! Check out everything; if you are comfortable with what you find, fine, go and invest. But, don't do it because someone says what a "nice guy" he is, or because he supports causes dear to your heart. Learn from these peoples' mistakes, please.

10

 Aug 15, 2008 at 11:01 AM AMG Says:

two years do not pass without an incident that the orthodox community does not loose tens of millions of dollars in investmentss they should have never invested in and i am aware of another invesment sceme which is currently collapsing where the losses will be in the hundereds of millions

11

 Aug 15, 2008 at 11:12 AM bigwheeel Says:

Brentxing 9:10AM. ...Eveybody (everybody)loved Robbin (Robin) Hood... Just a little pun, nothing personal! ...He was ROBBIN' the 'HOOD!!!

On a [more] serious note: The problem with Wextrust and its "Fundraiser" was that people invested [with his Company] on the basis of his (MR. Shhhh.) "Kindness and Generosity"! There are many stories of that nature going back to Talmudic Times. One classical tale is recounted of 2? Rabbis who, in their travels arrived in a certain town on a Friday afternoon. Their first stop was at a local Shul,where they saw a man praying with his Tallis & Tefillin. After making small talk, one of the Rabbis asked him to safekeep his wallet over Shabbos! The other Person (Rabbi Meir) said [to his companion] "I Don't Trust this Guy"! and he didn't leave his valuables with him. On Sunday morning, when they approached this "Holy Man" [who was praying, all afternoon,(preying, maybe!) he denied ever seeing them before! (the story has many more details, which are not relevant to this case) The moral of the story is; Just by the fact that someone appears to be a big Tzaddik, [even being "kind and generous"] does not make him trustworthy!

12

 Aug 15, 2008 at 11:20 AM bigwheeel Says:

Been Burned 9:42AM. Same story. ...I, and many others lost a lot of money to some frum guys...
Don't these "frum" guys have a name and address and someone who vouched for them?! Anyway, a good [legitimate] investigator could find these perps in a snap!

13

 Aug 15, 2008 at 11:40 AM Anonymous Says:

"He heard from an acquaintance that the fund’s returns were higher than the stock market"
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>


Like Rabbi Eli teitelbaum would say, if it is to good to be true.....!!!!!!!


These people that invest only because they "heard" that they can make more money than the stock market are IDIOTS!!

The people we should feel bad for are the others that were duped.

14

 Aug 15, 2008 at 11:52 AM anonymous Says:

R. Eli Teitelbaum zt"l, we miss you...........

15

 Aug 15, 2008 at 12:01 PM Anonymous Says:

sounds like Shereshevsky was the guy bringing in the funds. what we shuold be asking is when he found out it's a scam, and did he continue to raise funds after he realized.

16

 Aug 15, 2008 at 12:40 PM murray Says:

This is NOT a case of the 'business' going bad after a while, then he had to use incoming funds to pay debts and payoffs to the previous investors. This was set-up and conceptualized as a Ponzi Scheme from day one. Wasn't he arrested and convicted of basically the same thing ,or other fraud in the past?

17

 Aug 15, 2008 at 12:50 PM Anonymous Says:

It's important to publicize these types of crimes.
By doing so, you are hopefully protecting the next "sucker" from investing with the wrong people. A common error that people make with investing with these so called "askonim" is that the investment is never guaranteed, but this "askon" will never cheat you. Just look back at the days of David S. Who would have thought that he would steal from people?? These poor investors chose not to learn from past history. With publicity however, we might be able to protect future failures.

18

 Aug 15, 2008 at 01:26 PM KOOSEEMUK Says:

looks like he may have eaten the profits

19

 Aug 15, 2008 at 01:29 PM KOOSEEMUK Says:

Wood it bi 2 much too assk for pepel to lern english in yeshiver

20

 Aug 15, 2008 at 01:40 PM Anonymous Says:

Don't be so gullible. Shereshevsky lied about almost every aspects of the investment funds. He forged investment returns to get more people to invest. Then, when people invested, he paid himself millions and paid a small return to previous investors...and the cycle kept continuing until it was so obvious they couldn't hide the scam.

21

 Aug 15, 2008 at 02:27 PM Anonymous Says:

It is not the first time he stole peoples money, he did this a few years ago in the Diamond business on 47th Street, people just don't learn to do proper research

22

 Aug 15, 2008 at 02:32 PM Anonymous Says:

how could you say such a thing about hem hes a very nice person

23

 Aug 15, 2008 at 02:42 PM Anonymous Says:

He paid peoples' mortgages in the past?!? (with MY money?) Perhaps he can pay my mortgage NOW!!!!!!!!!!!!!!!!!!!!

24

 Aug 15, 2008 at 02:50 PM murray Says:

Anon 2:32-Identify Yourself: Your his mother, right?

25

 Aug 15, 2008 at 03:11 PM berl Says:

as i said before alot of learned orthodox jews it hurts me to say this have the gullibility of a golem

26

 Aug 15, 2008 at 04:09 PM BEEN BURNED Says:

These guys DEFINITELY have names & addresses -
(one is in the Next World, tho) THEY BOTH CLAIMED TO HAVE LOST ALL OF THEIR MONEY, TOO !!!
And the other walks freely in brooklyn ....

27

 Aug 15, 2008 at 04:35 PM Anonymous Says:

No, NOT his mother...one of the Christians who got scammed!!! It wasn't just Orthodox Jews who were affected. My hard earned money was stolen also!

28

 Aug 15, 2008 at 09:03 PM Anonymous Says:

I do not understand how "Mr. S" could hold himself out as the Principal of a SEC broker dealer without a proper license. It would seem that the SEC would inquire about this matter and others before allowing WexTrust Capital LLC to operate as a broker dealer.

29

 Aug 16, 2008 at 09:08 PM not fooled Says:

When will everyone learn that 'religious' is a very overused term? If someone (intentionally) steals, he is not religious! Why are the concert ban rabbis silent o n this? How come there is no ban on these fakers? Why are the concert ban rabbis only interested in taking down innocent people but are silent on robbers?

30

 Aug 17, 2008 at 04:14 PM Anonymous Says:

Doyvi: The Rabbi never ever said that Yossi was the kindest, most generous, trustworthy man. I was outside watching while the interview was being conducted.

31

 Aug 17, 2008 at 10:02 PM Anonymous Says:

I think I know what's the psychology behind these people who operate these types of ponzi schemes. They probably say to themselves, first let me make millions anyway I can, then if or when I get caught, I'll hire the best lawyers stolen money can buy and then take their chances with the legal system. More often than not, they come out ahead by being either exonerated or sentenced to a country club type of prison for a few years. So, in the end these people are not as stupid as they appear to be when they are caught

32

 Aug 19, 2008 at 04:35 AM Among the Victims Says:

(It is not the first time he stole peoples money, he did this a few years ago in the Diamond business on 47th Street, people just don't learn to do proper research.)

And how do you suggest a potential investor should have done their research? Personally, I spoke to reputible advisors, compared the PPM to similar real estate LLC investment opportunities, etc. This was not a get rich quick sheme. It was a ligitimage real estate investment with normal rate of returns and risks. How would I have knows that one of the principles went by an alias years ago, or that he had a prior criminal conviction? Do a web search for his name now, and all you find is current referrances to the prior conviction. It's too old to have any news archives available, and the general public does not have access to teh court archives, that I have been able to figure out. Short of doing a criminal background check on every single person you do business with there was no way to predict this. To suggest otherwise is obsurd.

33

 Aug 22, 2008 at 02:07 PM LakewoodInvestor Says:

I invested 100k with Wextrust. We realized something was wrong when we put in a request to release our money and then they adamantly refused saying the money was tied up and they didnt have the cash available. But, just shortly thereafter we got a letter in the mail from them regarding new investments....We realized something was very wrong but it was too late...Why were they starting new investments when the cash wasn't there for current investments??? Well now we know why..... What a chilul hashem!!!!!!

34

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