Founder Of Rye Investment Firm Charged In $20M Fraud Scheme: DOJ

RYE, NY — The founder and managing director of a Rye investment firm is accused in a $20 million fraud scheme targeting an FDIC-insured bank, according to federal investigators.

John Arthur Hanratty, a New York-licensed attorney, is charged with a fraudulent scheme connected to a $20 million line of commercial credit.

Damian Williams, the United States Attorney for the Southern District of New York, and James Smith, Assistant Director in Charge of the New York Office of the FBI, announced Hanratty's arrest for charges in connection with a fraudulent scheme to steal money from a FDIC-insured bank through lines of credit totaling $20 million granted to Hanratty's municipal tax lien investment firm.

"John Arthur Hanratty, a New York-licensed attorney and the founder of a multi-million-dollar municipal tax lien investment firm, allegedly stole money from a bank to obtain lines of credit totaling $20 million, which he misappropriated by paying back investors who had sued his firm," Williams said. "Thanks to this Office’s teamwork with the FBI, Hanratty is now facing serious criminal charges for his alleged fraud."

Between 2017 and 2021, Hanratty participated in a fraudulent scheme to steal money from an FDIC-insured bank by drawing down on $20 million in commercial lines of credit that had been extended to Ebury Street Capital, according to investigators. Specifically, he made materially false statements on spreadsheets (known as “borrowing base certificates”) submitted to the bank, summarizing the value of the municipal tax liens that Ebury Street Capital was offering as collateral for its commercial line of credit, prosecutors contend.

Prosecutors say that as a result of these false statements, the bank paid Ebury Street Capital large sums of money to which it was not entitled. The false statements on Ebury Street Capital’s borrowing base certificates included, among other things, listing large quantities of municipal tax liens on the borrowing base certificates that Ebury Street Capital did not actually own and double-counting municipal tax liens by listing the same liens on multiple borrowing base certificates, according to court filings.

Additionally, prosecutors say that although Ebury Street Capital was contractually required to use money from the bank either to purchase municipal tax liens or for ordinary business expenses, Hanratty actually used portions of the money obtained to pay off Ebury Street Capital’s investors who were threatening to sue.

Ebury Street Capital’s commercial line of credit has now been completely exhausted, and the entity owes over $20 million in principal and interest to the bank.

According to the allegations in the complaint unsealed in Manhattan federal Court, Hanratty was the Founder and Managing Director of Ebury Street Capital, LLC ("Ebury Street Capital"), an investment firm with a portfolio primarily comprised of municipal tax liens. Hanratty served as the Managing Director and Principal for Ebury Street Capital.

"Fraudsters are very good at what they do. They are extremely convincing and will jump at every opportunity to defraud a new pool of potential victims," FBI Assistant Director in Charge James Smith said. "John Hanratty allegedly prioritized his own greed over decency and respect for the laws of our country. The FBI and our law enforcement partners remain dedicated to investigating and holding accountable those who flagrantly disregard our laws by seeking to enrich themselves at the expense of their victims."

The 49-year-old from San Juan, Puerto Rico, is charged with one count of wire fraud affecting a financial institution and one count of bank fraud, each of which carries a maximum sentence of 30 years in prison.

This case is being handled by the Complex Frauds and Cybercrime Unit.