RECIDIVIST FRAUDSTER SENTENCED IN MANHATTAN FEDERAL COURT TO 70 MONTHS IN PRISON FOR MULTI-MILLION DOLLAR INVESTMENT SCHEME
FOR IMMEDIATE RELEASE
Friday April 13, 2012
Preet Bharara, the United States Attorney for the Southern District of New York, announced that ROBERT E. MCDONALD, the former president of RAI Hotel Acquisition, Inc. (“RAI, Inc.”) was sentenced today in Manhattan federal court to 70 months in prison for securities fraud, wire fraud, and mail fraud crimes in connection with a multi-million dollar investment scheme. As part of the scheme, MCDONALD solicited funds from investors by falsely stating that the investments would be used toward the purchase of more than $100 million worth of hotels. Instead, he spent a substantial portion of investors’ funds on a variety of personal expenses. MCDONALD was convicted in July 2011 after a two-week jury trial. He was sentenced today by U.S. District Judge John G. Koeltl.
Manhattan U.S. Attorney Preet Bharara said: “Robert McDonald was a serial offender who created an elaborate charade to rip-off his would be investors, underwrite his spending habits, and even pay off his debt to the victims from one of his previous scams. With today’s sentence, we trust that he will finally get the message that crime does not pay.”
According to the Indictment filed in Manhattan federal court, other court documents, and statements made during the trial and related court proceedings:
In May 2009, MCDONALD, on behalf of RAI, Inc., entered into an agreement to buy a portfolio of approximately 14 hotels located in the Midwest (the “Midwest Hotel Portfolio”) for $108 million. MCDONALD then contacted an individual who already owned and managed several hotels (the “Hotel Investor”) and solicited $8 million to complete the purchase. He told the Hotel Investor that RAI, Inc. would combine the Hotel Investor’s funds with approximately $22 million in existing assets and would then borrow the remaining funds to complete the purchase. To show that RAI, Inc. had adequate funds to complete the transaction, MCDONALD e-mailed the Hotel Investor a fake statement from JP Morgan Chase which showed that he had assets of $88 million. MCDONALD also e-mailed the Hotel Investor a phony letter from JP Morgan Chase stating that RAI, Inc. “has under management in the treasury services management division of our global trades department approximately $15,456,792.28.” In fact, there was no RAI, Inc. account at JP Morgan Chase. As a result of these assurances, the Hotel Investor wired approximately $1.5 million to a bank account that MCDONALD had provided in return for a 20 percent ownership interest in RAI, Inc.
In June 2010, MCDONALD solicited $400,000 from another potential investor for the Midwest Hotel Portfolio. The investor ultimately sent MCDONALD approximately $128,000.
MCDONALD never completed the purchase of the Midwest Hotel Portfolio. Instead, he diverted a substantial portion of the $1.6 million he received to pay for personal expenses, including cosmetic dental work, Florida real estate, and the payment of restitution that he owed victims in connection with his 2006 conviction in Manhattan federal court for wire fraud and credit card fraud. He was also convicted in 2006 in a separate wire fraud case in Manhattan federal court. MCDONALD failed to disclose any of these prior convictions to potential investors in the scheme for which he was sentenced today.
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In addition to the prison term, Judge Koeltl sentenced MCDONALD, 32, of Tampa, Florida and Manhattan, New York, to three years of supervised release. MCDONALD was also ordered to forfeit $1,582,323, as well as his interest in a house and a vehicle that he purchased with proceeds from his fraud, and ordered to pay $1,596,000 in restitution to his victims.
Mr. Bharara praised the investigative work of the U.S. Postal Inspection Service.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Arlo Devlin-Brown and Jason Cowley are in charge of the prosecution.