Beverly Hills Entrepreneur Is Indicted in Fraud Case
Harry Shuster, the flamboyant Beverly Hills entrepreneur who cast his fortunes with passing fads from animal parks to cigar clubs, has been indicted over an alleged multimillion-dollar scheme to profit from fraudulent offshore stock transactions, federal prosecutors said Friday.
An indictment handed down by a federal grand jury in New York charges Shuster, 64, with four counts of securities fraud and conspiracy to launder money.
Friday’s indictment arose from a federal probe into Stratton Oakmont Inc., a now-defunct Lake Success, N.Y.-based brokerage that was ousted from the securities industry three years ago.
Prosecutors said the South African-born Shuster, who at one point waged a 12-year land war with the Irvine Co., took advantage of a securities law exemption intended to encourage foreign investment in U.S. firms. The Securities and Exchange Commission’s Regulation S allows a publicly traded company to sell shares to foreign consumers at a substantial discount without filing a registration statement.
But prosecutors said Shuster used an offshore corporation he secretly controlled through a Swiss bank account to buy the discounted shares of his co-conspirators’ firms, then resold them at or above the market price, reaping millions.
Shuster is accused of using Plus One Finance, incorporated in the British Virgin Islands, to launder the profits and conceal the fact that the shares were purchased by a U.S. citizen who would be legally barred from participating under the SEC regulation.
The shares were allegedly issued by two firms owned by Stratton Oakmont’s principals, Jordan Belfort and Daniel Porush. Belfort and Porush were charged in September.
Prosecutors charge that Shuster also used Plus One to “promote additional fraudulent securities investments,” including some that were in securities underwritten by his own public companies, Grand Havana Enterprises Inc. (formerly United Restaurants Inc.) and United Leisure Corp., as well as Stratton Oakmont.
Alan Cohen, Shuster’s attorney, told Dow Jones that his client is “completely innocent of these charges.”
Cohen said Shuster is resigning from his positions as chairman and chief executive of both Grand Havana and United Leisure to devote his full efforts to his defense.
The indictment comes at an already difficult time in Shuster’s colorful career. Grand Havana, the Shuster-led operator of private cigar clubs in Beverly Hills, New York and Washington, was delisted from Nasdaq in October and had been trading over-the-counter. United Leisure was delisted in December.
A spokeswoman for Grand Havana did not return a phone call Friday.
Last September, Shuster settled a his lengthy legal battle over use of the land occupied by Irvine Meadows Amphitheatre and Wild Rivers Waterpark. The outdoor concert venue had subleased land from Shuster, owner of the defunct Lion Country Safari animal park. After Shuster threatened to bulldoze the theater and Wild Rivers, the operators won suits against Shuster, saying he had no right to tear down their businesses. Shuster was left personally liable for the theater’s $543,000 in legal fees.
On Friday, Shuster reportedly appeared before a federal magistrate in Brooklyn, N.Y., for arraignment. If convicted, he faces up to 20 years in prison, fines of up to $10 million and forfeiture of millions of dollars of property traceable to the proceeds of the alleged scheme, according to the U.S. attorney in Brooklyn.
Shares of Grand Havana did not trade Friday. They closed Thursday at about 16 cents on the over-the-counter bulletin board. United Leisure shares fell 31 cents to $2 on the bulletin board on Friday.
