$650M Ponzi Scheme In NJ Got Boost From Essex County Man, Feds Allege

ESSEX COUNTY, NJ — An Essex County resident pleaded guilty to conspiracy to commit securities fraud in connection with a $650 million Ponzi scheme that attempted to rip off more than 2,000 investors, federal prosecutors announced Thursday.

Arthur S. Scuttaro, 62, of Nutley, the former head of sales at National Realty Investment Advisors LLC (NRIA), pleaded guilty in Newark federal court to an information charging him with one count of conspiracy to commit securities fraud, according to the U.S. Attorney’s Office.

Sentencing for Scuttaro is scheduled for Feb. 23, 2023, prosecutors said.

Prosecutors also announced criminal charges against the two people who allegedly led the massive Ponzi scheme: Thomas Nicholas Salzano, 64, of Secaucus, and Rey E. Grabato II, 43, of Hoboken and the Republic of the Philippines.

Salzano and Grabato were charged in an 18-count indictment that accuses them of conspiracy to commit securities fraud, securities fraud, conspiracy to commit wire fraud, wire fraud, and conspiracy to defraud the United States. Salzano is also charged with two counts of aggravated identity theft, two counts of tax evasion, and five counts of subscribing to false tax returns, prosecutors said.

Salzano was arrested Wednesday and is scheduled to appear in court on Thursday. Grabato remains at large, authorities said.

“As charged in the indictment, these defendants schemed to create a high-pressure, fraudulent marketing campaign to hoodwink investors into believing that their bogus real estate venture generated substantial profits,” U.S. Attorney Philip Sellinger said.

“In reality, their criminal tactics were straight out of the Ponzi scheme playbook so that they could cheat their investors and line their own pockets,” Sellinger added.

Here’s how the scheme worked, prosecutors allege:

“Grabato was president of NRIA and Salzano was the firm’s shadow chief executive officer. From February 2018 through January 2022, Salzano and Grabato defrauded investors and potential investors of NRIA Partners Portfolio Fund I LLC, a real estate fund operated by NRIA, of $650 million through lies, deception, misleading statements, and material omissions. These included false representations about NRIA’s financial position, how the defendants and their conspirators used fund investor money, and Salzano’s managerial role at NRIA and his history of fraud. The defendants executed their scheme through an aggressive multi-year, nationwide marketing campaign that involved thousands of emails to investors; advertisements on billboards, television, and radio; and meetings and presentations to investors. Salzano led and directed the marketing campaign, which employed deception, material misrepresentations and omissions, and falsified documents to manipulate investors. The marketing campaign was intended to mislead investors into believing that NRIA was a solvent business that generated significant profits. In reality, NRIA generated little to no profits and operated as a Ponzi scheme, which was kept afloat by new investors. Despite investing almost none of their own capital into the business, the defendants misappropriated millions of dollars of investor money.”

Prosecutors continued:

“Salzano concealed his true managerial role at NRIA while using Grabato as a stand-in CEO in an effort to avoid scrutiny by investors of Salzano’s prior guilty plea to defrauding small businesses in Louisiana through a large telecommunications company. Salzano and Grabato also orchestrated a separate conspiracy to defraud the IRS in its effort to collect $26 million in outstanding taxes Salzano owed to the U.S. Treasury. Salzano and Grabato are alleged to have lied to the IRS, used a web of nominees, opened bank accounts in the names of phony entities, and used false and fraudulent company documents.”

According to prosecutors, Salzano and Scuttaro carried out an “aggressive, multi-year nationwide marketing campaign” to promote the scheme, which allegedly involved “deception, material misrepresentations and omissions, and falsified documents.”

Meanwhile, the effort to restructure the NRIA continues, a spokesperson told Patch on Friday, offering the following statement about the investigation:

"The action taken by the Department of Justice details abuses by former executives of National Realty Investment Advisors. Court-approved executives now leading the company are engaged in the process of restructuring and developing a long-term financial plan that will position us for sustained, long-term success. The fundamentals of our business remain strong, and we look forward to a bright future."

CIVIL ACTION

In a separate civil action, the Securities and Exchange Commission (SEC) announced that it has filed a complaint against NRIA and four of its former executives with running a “Ponzi-like scheme.”

The SEC – which identified Scuttaro as a Bloomfield resident and spelled his last name as “Scutaro” – also cited Grabato, Salzano and Daniel Coley O’Brien, of Southampton, New York as the four accused executives in its complaint.

According to SEC officials – who cited a lesser total, about $600 million – the four executives promised investors returns up to 20 percent. But in reality, their money was used to pay distributions to other investors, to fund an executive’s family’s personal and luxury purchases, and to pay reputation management firms to thwart investors’ due diligence of the executives.

“In classic Ponzi fashion, these defendants allegedly told investors that they would be paid distributions from profits of their fund when, in reality, payments were being made from the investors’ own funds," said Thomas Smith Jr., associate regional director of enforcement in the SEC’s New York regional office.

“What makes this behavior even more callous is that they allegedly took advantage of 382 retirees who had contributed more than $94 million in savings,” Smith charged.

The SEC complaint, filed in federal court for the District of New Jersey, charges NRIA and the four former executives with violating the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The complaint seeks injunctions against future violations of the antifraud provisions, disgorgement of ill-gotten gains plus prejudgment interest, penalties, and officer and director bars against the four executives, and names Olena Budinska and Jamie Samul, a/k/a Jamie Samul Salzano as relief defendants.

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