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Embattled Developer Hit With Cease-And-Desist Order Over 'Egregious' Fraud Scheme Worth $630M

The legal problems continue to pile up for National Realty Investment Advisors.


The New Jersey Bureau of Securities has issued a cease-and-desist order against NRIA, finding the Secaucus-based developer fraudulently sold $630M worth of securities to at least 1,800 investors. It also used multiple unlawful methods of hiding improprieties, financial losses and mounting investigations, the New Jersey Office of the Attorney General announced Tuesday.

In addition to NRIA itself and its affiliates, OAG announced the NJBOS cease-and-desist order applied to four individuals: NRIA co-founders Rey Grabato and Coley O'Brien, former NRIA senior executive Thomas Nicholas Salzano and NRIA Executive Vice President of Project Management Arthur Scutaro. Grabato and O'Brien have been removed from their positions at NRIA by Brian Casey, whose firm The Casey Group was hired in October to oversee NRIA's operations; NRIA parted ways with Salzano in October.

NRIA and its affiliates filed for Chapter 11 bankruptcy protection on June 7, seeking relief to continue its business operations while a federal judge prevented the company's lenders and investors from demanding payback all at once. On June 16, NRIA filed a motion seeking authorization to sell a handful of condos at properties it developed on a compressed time frame — a motion for which United States Bankruptcy Court judge John Sherwood granted a hearing on Tuesday.

At that hearing, several investors in NRIA's flagship investment vehicle, the NRIA Partners Portfolio Fund, filed objections on the grounds the fund's investors had not had sufficient time to organize and/or assess NRIA's claims that a rushed sale was necessary.

New Jersey acting Attorney General Matthew Platkin submitted the NJBOS' cease-and-desist order as a document supporting those objections, adding the order contained "Findings of Fact and Conclusions of Law" that NRIA had violated state anti-fraud provisions. The cease-and-desist does not prevent NRIA from carrying out legal business operations, nor does it serve more than an informational purpose in the company's bankruptcy proceedings, an OAG spokesperson told Bisnow.

Though the 63-page order laid out dozens of individual activities that it found to be fraudulent, misleading or otherwise improper, it categorized NRIA's misdeeds into three primary areas:

— The company misled its Portfolio Fund investors about the source of payments they were receiving and the performance of the fund's properties. Its methods included creating shell companies to execute sham sales of condos, giving the impression that NRIA's projects were selling out.

— The company improperly steered contracts and business opportunities to family members of Grabato and Salzano, including a no-show job for Salzano's wife that paid well over $1M.

— The company failed to notify investors Salzano had been arrested for forging a loan document to solicit an investment in the fund. Further, NRIA did not remove Salzano from his position of influence until well after it claimed to have done so.

Among the revelations in the order was the extent of self-dealing perpetrated by Salzano and Grabato. One of NRIA's longtime contractors, Philadelphia-based U.S. Construction, employs Salzano's son Dustin as chief financial officer.

That had been public knowledge, though not specifically disclosed to investors. What had not been disclosed or known publicly is that Dustin Salzano is also a co-owner of USC, and that he co-founded Premier Access Property Management, one of NRIA's "main residential marketing and leasing compan[ies]," the order stated.

One of the fraudulent ways in which NRIA managed its fund was by charging development fees upfront rather than when a project was completed and sold, as is the standard, the NJBOS order stated. NRIA, at Thomas Salzano's direction, then labeled the development fees as income to inflate the fund's performance. Salzano solicited advice on how to relabel that money as finder's fees in emails with his son Dustin.

"The fact that Salzano’s son, as the CFO of a third-party general contractor, was participating in an internal accounting discussion on how NRIA could attempt to justify recognizing the development fee up front also illustrates the extent to which nepotism pervaded NRIA," the order read. "None of this information was disclosed to investors."

USC sued NRIA in March for nearly $30M, alleging that the latter improperly tore up a development contract for a South Philadelphia multifamily project and refused to pay agreed-upon fees. That case was suspended pending the outcome of NRIA's bankruptcy proceedings.

John Palladino, USC's attorney, repeatedly denied any improprieties in the connection between NRIA and the father-son duo in interviews with Bisnow.

UPDATE, JUNE 23, 10:30 A.M. ET: This article has been updated to include clarification from the New Jersey Office of the Attorney General on the scope and effects of the cease and desist order.