FORT LAUDERDALE, FL -- Late last week, the United States Attorney's office for the Southern District of Florida and the Federal Bureau of Investigation announced the arrests of two Florida businessmen who bilked investors out of more than $16 million.   Claudio Eleazar Osorio a/k/a "Claudio Osorio Rodriguez" of Aventura and Craig Stanley Toll of Pembroke Pines were arrested in connection with a federal indictment that contains a litany of charges, including wire fraud, money laundering, and making false statements to the United States Government.

According to the indictment, Osorio and Toll perpetrated the fraud through a Miami Beach company called Innovida Holdings, LLC.   Osorio acted as the company's president and majority shareholder while Toll served as the company's chief financial officer.  Innovida purportedly manufactured fiber composite panels used in construction.  Such materials are seen as replacements for cement, steel and other traditional materials.

Beginning in 2007, Osorio and Toll raised millions of dollars from a handful of individual investors and investment groups, many with ties to Florida.  The defendants secured these investments by, among other things, portraying the Innovida as a rapidly expanding international operation, making fraudulent statements about the companies profitability and misleading investors about pending lucrative deals with various third parties.

To add insult to injury, the Osorio and Toll used Haiti earthquake relief efforts to further their fraud.  In 2010 and early 2011, the Defendants applied for and obtained a $10 million loan from the Overseas Private Investment Corporation, the US government's development finance institution.  The loan was intended to fund various projects in Haiti, including a manufacturing facility and 500 homes for families that had been displaced by the earthquake.

Although Osorio and Toll may have given the company out to be a thriving enterprise, speculation about the possible fraud has been rampant since at least 2010.  As early as 2010, numerous investors filed private lawsuits alleging Osorio misappropriated millions of dollars worth of their investments and seeking the appointment of a recieve to take over his company.   Ironically enough, Osorio is the former CEO of a defunct Fortune 500 company called CHS Electronic.  That company went bankrupt in 2000, amid accounting irregularities and allegations of securities fraud.

As with many securities fraud cases, there probably will not be any happy endings here.  Osorio spent millions funding his lavish lifestyle over the past few years.  It is unclear exactly what assets remain in the company, but whatever assets remain are likely worth only a fraction of what was stolen.  Maybe Osorio personally owns property that can be liquidated and added to the pot.   And there may be insurance policies in play, including any policy for corporate officers, as well as a possible policy that covered Toll's accounting practice.  Of course, that still leaves the issue of the policy limits and whether the insurer will disclaim liability based on fraudulent and criminal acts (rather than just negligence).  In the end, it will be ugly, and the investors will be lucky to see even a 20% recovery.

The takeaway is pretty simple:  Investing in funds (or companies) sold via private placement always carriers greater risk and requires an extra layer of scrutiny.  Particularly when you invest via private placement, you should thoroughly research the principals behind the company.  If someone soliciting your investment has a checkered history - accounting problems, allegations of investment fraud - then you are better off taking your money elsewhere.  Heck, in that scenario, you are better off stuffing it under your mattress.

Pollard LLC
Jonathan Pollard is a trial lawyer and litigator based in Fort Lauderdale, Florida.  He focuses his practice on cases involving employment disputes, antitrust and business torts.

401 E. Las Olas Blvd. #1400 Fort Lauderdale, Fl 33301
www.pollardllc.com