1:08-cv-07104-DC Securities and Exchange Commission v. Byers et al
Denny Chin, presiding
Date filed: 08/11/2008
Date of last filing: 08/25/2008

Cause: 15:78m(a) Securities Exchange Act

Plaintiff: Securities and Exchange Commission

Defendant: Steven Byers
Defendant: Joseph Shereshevsky
Defendant: Wextrust Capital, LLC
Defendant: Wextrust Equity Partners, LLC
Defendant: Wextrust Development Group, LLC
Defendant: Wextrust Securities, LLC
Defendant: Axela Hospitality, LLC

Excerpted From Original Complaint Filed By The SEC:

SUMMARY

1.The Commission brings this emergency
action,to halt ongoing fraudulent offerings of securities by a
convicted felon, Defendant Shereshevsky, and his partner Defendant
Byers (collectively, the “Individual Defendants”);: The Individual
Defendants, acting through Wextrust and its affiliated entities,
Defendants Wextrust Securities, WEP, WDG and Axela (collectively, the
“Wextrust Entities or Wextrust Entity Defendants”), have raised at
least $255 million from at least 1,196 investors throughout the United
States and abroad.

2.Altogether the Defendants have conducted
at least 60 private placement offerings and created approximately 150
entities in the form oflimited liability companies or similar vehicles
to act as issuers or facilitators ofthe offerings (collectively the
“LLC Entities”). The vast majority ofthese offerings occurred between
2005 and 2008. However, at least four offerings occurred as early as
2002. Through these private placement offerings, the Defendants have
sold securities to investors in the form of investment contracts, notes
or other evidence of indebtedness.

3.Defendants have been fraudulently
raising money in the various offerings, each of which purportedly is
for a particular investment, without disclosing that funds raised were
actually being used to pay prior investors in unrelated offerings and
to make unauthorized payments to fund the operations of the Wextrust
Entities, which were operating at a deficit. An internal Wextrust
combined ”balance sheet” shows that as ofDecember 31,2007, Wextrust
Entities “borrowed” at least $74 million from the LLC Entities and also
“lent” at least $54 million to various LLC Entities. The Defendants are
raising money and commingling funds in contravention ofspecific
representations in private placement memoranda that investor funds will
be used for specific investments in real estate or other assets
identified in offering memoranda.

4.For example, the Defendants falsely
represented to investors that more than $9 million raised in a 2005
offering would ,be used to purchase’seven specifically identified real
estate properties that were leased by federal government agencies, such
as the General Services Administration (the “GSA offering”). In fact,
the Defendants never purchased the seven properties identified in the
GSA offering documents. Moreover, at the time the offering occurred,
Defendants knew or were reckless in not knowing that the seven
properties would not be acquired. Significantly, while the offering was
ongoing, the Wextrust Entities “borrowed” more than $6 million from the
funds raised in the GSA offering and used these funds for purposes
unrelated to the GSA offering.

5.In the private placement memoranda
distributed to investors, and Wextrust’s website, the Defendants have
also failed to disclose to investors that Defendant Shereshevsky is a
convicted felon who pleaded guilty to bank fraud. Defendants Wextrust
Securities, Byers and Shereshevsky are also violating the Commission’s
broker-dealer registration requirements because the Form BD filings
fail to identify Defendant Shereshevsky as a controlling person of
Wextrust Securities, and fail to disclose Shereshevsky’s felony
conviction. Also, Defendant Shereshevsky, while acting as a broker, has
failed to register with the Commission or be properly licensed as
associated with Wextrust Securities. In addition, while Defendants
Byers and Shereshevsky are openly managing Wextrust Securities and
soliciting investors for the securities offerings, they have failed to
pass ‘proper licensing examinations, such as the Series 7 and 24.

6.Expedited relief is needed because the
Defendants are in the midst of raising funds from new private placement
offerings and plan to divert funds raised from new investors to repay
moneys owed to investors in prior offerings and to meet other expenses
of the Wextrust Entities. To halt the ongoing fraud, maintain the
status quo and preserve any assets for injured investors, the
Commission seeks emergency relief, including temporary restraining
orders and preliminary injunctions, and an order: (i) imposing asset
freezes against the Defendants; (ii) appointing a receiver over the
Wextrust Entity Defendants; (iii) allowing expedited discovery and
preventing the destruction of documents; and (iv) requiring the
Defendants to provide verified accountings. The Commission also seeks
permanent injunctions, disgorgement of ill gotten gains, plus
prejudgment interest and civil monetary penalties against all of the
Defendants.

http://www.backgroundnow.com/blog/2008/08/26/secs-complaint-against-joseph-shereshevsky-steven-byers-wextrust-and-axela/

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