Steven Byers, the former president and CEO of the company that once owned the historic Arcade Building in downtown Riverside, was sentenced to more than 13 years in federal prison on Monday for his part in a securities fraud scheme that bilked investors out of millions.
Judge Denny Chin sentenced Byers, the former head of Wextrust Capital LLC, to 160 months in prison at a hearing held April 11 in New York City. Byers in April 2010 pleaded guilty to two felony counts of securities fraud.
"Steven Byers used smoke and mirrors to defraud his investors out of millions of dollars," said U.S. Attorney Preet Bharara in a statement. "But his scheme was ultimately exposed for the sham that it was, and now he will be punished severely for his crimes."
Court documents reveal the extent of the Wextrust scheme, which played out between 2003 and 2008. Byers and his co-defendant in the case, Joseph Shereshevsky, began raising money from investors for various private offerings, including the purchase of real estate.
A subsidiary of Wextrust Capital purchased the Arcade Building in Riverside in December 2004 for $3.1 million and quickly unveiled plans to turn it into a mixed-used commercial/condominiums development.
The plan was bogged down and the scope of the development changed over the next couple of years. In August 2008, when work had begun on some aspects of the building's renovation, it suddenly ground to a halt when Byers and Shereshevsky were charged with securities fraud.
While Wextrust did buy the Arcade Building and several other properties, it failed to invest millions of dollars as promised. In one instance, the company raised $9.2 million to buy seven commercial properties leased to the U.S. General Services Administration. The company also took out a $21 million mortgage to help cover expenses for buying and operating the properties.
In the end, none of that money was used to buy or operate the properties, a fact never told to investors.
"Byers and others later agreed to make up a story that they would then tell the GSA investors regarding what happened to their investment," according to a press release issued by the U.S. Attorney's Office on April 11.
The Arcade Building, completely vacant by January 2009, was mired in the Wextrust lawsuit for six months, when Chin returned the property to the mortgage holder. However, it would be another year before the Arcade Building would find a buyer in Giuseppe Zappani, who has been restoring the building.
In addition to the prison time, Byers was order to pay restitution totaling $7.7 million and forfeit the $9.2 million his company was given by investors for the GSA properties.
Shereshevsky, who pleaded guilty in February to similar charges, is scheduled to be sentenced on May 13.
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