A note to Insiders: Last week, we explored an expected total loss of investor equity from a portfolio going under. Today, we look at a loss of equity from an explosive case of fraud involving a notorious investor and a state Supreme Court Justice. It’s a classic of the genre, but one that reveals a reputation-burnishing playbook used even by non-fraudsters. Enjoy the read.

(If you know someone who would benefit from reading this and might want to become an Insider, forward it along – they can get 10% off here. - HS)

“I think it was Churchill that was describing Russia as an enigma wrapped up in a riddle,” attorney Kevin Nash said during a bankruptcy hearing more than a decade ago. “And I think Mr. Miller and Mr. Sprei would make Churchill’s Russia. They have a penchant for moving in and out of properties with other people’s monies.” 🪆🪆 Nash was referring to notorious New York real estate investor Chaim Miller & his much younger sidekick Sam Sprei, who at the time were facing a barrage of lawsuits from creditors, partners and investors – one complaint even invoked the Mel Brooks classic The Producers, likening Miller & Sprei to Max Bialystock & his accountant. That was in ‘15, and Miller has since faded out of the New York dealmaking arena, at least as a headliner. Meanwhile, Sprei, now 37, has continued to wheel & deal, playing supporting parts on the seedy Brooklyn political stage. Over the last year and change, his name has popped up as an associate of under-fire Democratic power-broker Frank Seddio. But things just hit a whole new level.

This morning, the DoJ arrested Sprei & former Kings County Supreme Court Justice Edward Harold King, and charged them both w/ wire fraud conspiracy. The duo, feds allege, exploited King’s position as a sitting judge to bolster the investment appeal of fugazi CRE deals, thereby defrauding investors of millions of dollars.

“Fraud that hides behind a veneer of legitimacy—especially the authority of a judge—strikes at the heart of public trust,” Special Agent in Charge Harry Chavis said in the DoJ announcement. The complaint is a good opportunity for us to look at how promoters (we’ve always loved this old-school term for GPs) are wired to exploit any edge they can find to make a deal seem more attractive to OPM. And how that wiring can sometimes manifest in straight-up fraud.

This week on the pod, we dive into Sunbelt multifamily kingpin’s Scott Everett's (S2 Capital) audacious attempt to save his distressed portfolio via a private REIT – an attempt coming apart in real time. It's a launchpad to discuss the Sunbelt ZIRP-fueled boom/bust, the broader syndicator reckoning and how survival is sometimes all you can hope for. It’s then time to talk fathers and sons – a long-stalled FiDi site at 8 Carlisle may finally see salvation after lender Maxim Capital kept the faith in developer Grubb Properties, after a decade-long debacle by the Ohebshaloms. And then it’s time to unpack the real estate legacy of a “G”reat man, just-passed media mogul Ted Turner. Plus, our Punch List rundown of the newsiest industry happenings: A sextortion plot against Fortress founder Wes Edens; Barnett's latest assemblage; La Caisse + EB-5 investors taking a 🛀 in Brooklyn; and Soloviev's $526M CMBS windfall.

💗 to our sponsors:
1) Bravo Capital, a leading HUD & bridge lender. Read their SNF primer here.
2) Pensford, the only interest-rate advisory focused exclusively on CRE. With over 10K rate caps under its belt, Pensford is your go-to partner on rates.
3) Real Property Captive, the first group captive insurance for mid-market GPs. See how you can earn dividends on unused premiums by going to rpcaptive.com

Listen on Spotify here, YouTube here or Apple Podcasts here. Brands: Get in front of our obsessed audience of CRE insiders by reaching out here.

Per the complaint, Sprei, who sometimes operated under the monikers “Shimon Sprei” & “Eli Shapiro,” approached 2 investors in Nov. ‘24 w/ a chance to bid at a bankruptcy auction on a property in Freehold, NJ. They were asked to show "proof of liquidity" by putting the money in an escrow account; the escrow agent, Sprei told them, would be an LLC controlled by King, at the time a sitting New York judge, and that the investors had the right to get their money back – no Qs asked – w/ 2 days notice.

The UCC auction (non-judicial process) notice for the property hit the papers in Jan. ‘25. The auction was to be conducted on 3/11/2025, and the required escrow was just $250K. King was not ID’d in the notice as the escrow agent.

On 2/26/2025, based on their discussions w/ Sprei, the investors wired ≈ $6.5M to the King-controlled escrow account. Within 24H, the account saw a series of undisclosed withdrawals, including ≈ $3.5M withdrawn at the teller window.

• $700K teller withdrawal
• $2.7M teller withdrawal 👏 👏
• $850K to a Sprei bank acct.

A couple weeks later, the actual UCC auction was set to proceed as noticed – w/ the much lower $250K deposit threshold. The investors weren’t provided deets on the bankruptcy proceedings Sprei had touted – because no such proceedings existed. In April, when they wrote to request the return of their funds, King said he would send a “notice” to “the trustee” re. the redemption request; their escrow agreement had no reference to a trustee. In May, about $1.5M was wired back to the investors. The rest remains unaccounted for. This Jan., King resigned from his judgeship amid a cloud of similar allegations of escrow fraud. If convicted, Sprei & King could face up to 20Y in prison.

The funny thing about this – and perhaps this is a bit of stretch, but indulge me – is a lot of these reputation-burnishing tactics are used across the CRE universe, not just in fraud cases. Sponsors and lenders will sometimes tap fmr. lawmakers & judges to give whatever they’re peddling a bit of extra gravitas. EB-5 bigwig U.S. Immigration Fund (Nick Mastroianni), for example, appointed fmr. US Ambassador Charles Gargano to be the firm’s figurehead; I will never forget Gargano charming a room full of Chinese bureaucrats and business leaders in Shanghai. One does what one can to look more legit. You just hope that the showmanship eventually manifests in a real deal – and not a federal complaint. 🪆🪆

On Wednesday, 5/20 at 12pm ET, we’ll be hosting the second installment of “In Conversation,” our Insider-only series of unplugged discussions w/ CRE industry leaders (Highlights from our inaugural event w/ David Lichtenstein here). Hiten will be speaking with David Hochfelder, the CIO of Naftali Group, among the most active developers of top-shelf product in both New York & Miami. Hochfelder has a broad mandate at Naftali, where he oversees both acquisitions and credit deals for a firm that’s built $15B in projects across 30M sf. Last year, Naftali paid a staggering $800M+ for 800 Fifth Ave, where it plans to set a new high-water mark for Manhattan luxury. Among things we’ll discuss:

Register here, and please hit us with any Qs you’d like Hiten ask David by replying to this email.