Has A New Ed Okun Arrived On The 1031 Exchange Scene: Vesta Strategies LLC Staggers From Wall St. Journal Story

In another apparent blatant rip off of 1031 exchange investor funds, Vesta Strategies of San Jose, California “has closed its doors, leaving investors scrambling to recover millions and pointing to flaws in the largely unregulated industry” according to the Wall Street Journal report “Behind the Boom and Bust of Real- Estate Player Vesta.”

Do we have another Ed Okun 1031 Tax Group on our hands?

The Founders

Chicago businessman John Terzakis and partner Robert Estupinian were the principles at Vesta Strategies. They founded Vesta in 2004 amid a firestorm of legal problems

History

According to WSJ’s Kris Hudson’s report:

“Mr. Terzakis had a history of failed real-estate deals and soured relationships — information Mr. Terzakis isn’t required to disclose to potential clients. Now the two men are accusing each other in separate lawsuits of diverting millions of dollars from Vesta for personal use.”

The Losses Sound Familiar

Christina Pappas a California investor, a familiar story to the “Trainwreck Victims of Ed Okun”, is out $2.5 million she handed to Vesta in April 2008 from the “sale of a property.”

When Ms. Pappas found a replacement property, another building, to purchase within the IRS’s 180 day exchange period, she requested her funds be wired in order to close the deal. To her utter horror, but familiar to the people following this industry, Ms. Pappas maintains that the “Vesta representative failed to wire her money to complete the property exchange by the June 16 closing, and still hasn’t done so”

The Numbers

According to WSJ story, Mr. Estupinian was quoted as saying that “Vesta Strategies held $10 million to $30 million in client money at any one time.” Okun like no, but no small sum of money in any case

Vesta Infighting And Meltdown

In a scene worthy of Ed Okun, the two principles Terzakis and Estupinian ended up in court with Terzakis initiating the legal action.

Mr. Terzakis allegations included

1. Estupinian misappropriated several million dollars of Vesta’s money for his family’s use

2. $96,000 salary for Mr. Estupinian’s wife, who allegedly did little work for the company

3. Expenditures on a $1.3 million house

4. A $160,308 oceanfront apartment in Long Beach

5. $50,000 for a pair of dogs-doesn’t everyone have $50,000 twin dogs?

6. $42,795 in tuition toward Mr. Estupinian’s doctorate degree-education is expensive

The Countersuit by Mr. Estupinian

1. Embezzlement of about $25 million and the following quote by Mr. Estupinian:

“Beginning as far back as 2000, John Terzakis has been treating the client funds as his own personal piggy bank in order to fund his many personal business and development projects”

Final Final

If this does not sound like the Okun case it certainly sounds like a close facsimile to it. The bottom line for Ms.Pappas and fellow investors serviced by Vesta Strategies could be the same fate suffered by Okun victims: no return on investment, IRS nightmare tax bill, and the prospects of a lost retirement fund spent in a lavish lifestyle befitting a crook

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6 thoughts on “Has A New Ed Okun Arrived On The 1031 Exchange Scene: Vesta Strategies LLC Staggers From Wall St. Journal Story

  1. Real estate investors need to carefully evaluate their prospective Qualified Intermediaries. The three losses that our industry has experienced over the last couple of years resulted from individuals that had recently “jumped” into the 1031 exchange arena. Real estate investors need and should look at the longevity of ownership, management, and employees as well as bonding and insurance and experience.

  2. Hi Bill!

    I agree with you on everything but one issue. I have spoken to 14 of the Okun victims directly, Gerald McHale indirectly, and two editors for finacial news sources on this subject: dual signature policies. Everyone from attorneys to prosecutors are convinced that control via a dual signature process is the only way to secure funds.

    Insurance must be investigated by consumers to make sure the policies are still valid. In addition a consumer should hire an attorney during their due diligence to make sure the insurance rider carried by the QI is going to cover each incidence to the right monetary levels, and that the language written into the insurance policy actually covers the type of incidence(s) that an Okun created with his ponzi scheme. Thanks for commenting!

    dean

  3. Gentlemen,

    I certainly agree with you both.

    Bill, longevity certainly would seem to be a key in our prospective client’s search for a QI. If longevity is in place, then experienced management and employees should be what carried them thus far. Can anyone say enough for bonding and insurance? Good to hear from someone with such experience in the industry, Bill.

    Dean, I could not agree with you more in that dual signatures are a key to security. Certainly it is one extra step for us to take, but in our attempt to provide as much security as possible for our client’s funds, why wouldn’t we? It is time for potential 1031 clients to ask hard questions of the QIs they are considering. If it was my money, I certainly would.

  4. SML,

    With the Ed Okun ponzi scheme winding it’s way through the courts and the latest “mirage” called Vesta Strategies aka Personal Piggy Bank, consumer confidence should have been shattered ultimately destroying the 1031 industry.

    Yet that will never happen for one reason and one reason only in my opinion-consumers are unknowing or just unaware. They often perform due diligence but not the right type of investigative due diligence. They then suffer the unthinkable–scam rip offs in a way they never could have imagined.

    Even if 90% of the industry is clean, the other 10% threaten the very livelihood you now enjoy.

    My hopes are that they hammer anyone engaging in a ponzi scheme 1031 shell game like Okun, McGhan, and now Vesta with massive penalties

    The very niche itself is fighting to stay alive.

    dean

  5. I’m very interested in learning how prospective 1031 exchangers can “look at the longevity of ownership, management, and employees as well as bonding and insurance and experience.” In the case at least of the 1031’s quietly acquired by Ed Okun, who then proceeded to plunder the exchange funds held by each of them to acquire other 1031’s and finance his lavish lifestyle, nearly all of them had been in business for decades. The fact that the owners, in some cases known personally to exchangers over a long history of 1031 transactions, did not publicize or share with their client base the fact that they’d sold out to Okun and, in fact, remained on board in their former roles and capacities, along with their staffs, appears to have been part of a deliberate strategy (perhaps even a condition of the sale?) to hide hide from exchangers that any transfer of ownership had occurred. Where/how would a potential exchanger learn that ownership had changed? To what agency (federal, state, local) must a 1031 report its ownership. What requirements are there that demand that such information be published. What regulations or reporting exist governing the behavior and conduct of 1031’s at any level?

    As to insurance, what should a prospective 1031 client look for in an insurance policy provided by a 1031? The fidelity bonds provided to customers of those acquired by Okun gave false assurances of coverage in the millions, but in fact, like the fidelity bond offered by the Federation of Exchange Accomodators (according to their website), “Q: How does the policy limit under the FEA Fidelity Bond apply to claims?
    A: The policy limit applies on a “per occurrence” basis, meaning each separate loss event or series of
    related loss events has the full benefit of the policy limit. Losses are usually considered related, i.e. a
    single occurrence, if they arise out of the same set of circumstances. The limit does not apply per
    customer, per transaction or per account.” While exchangers to whom these Fidelity Bonds are routinely presented as some kind of assurance regarding the security of the funds held by the 1031 would reasonably interpret their transaction as the “per occurrence” covered by the bond value, FEA’s FAQ’s attempt to limit that coverage to each incident and insurers in the case of Okun are already attempting to construe him and his ongoing series of embezzlements from multiple 1031’s he acquired over time as a single occurrence. Since collectively he embezzled $150 plus million, these bonds are wholly inadequate in terms of providing any kind of security to exchangers. So, what should exchangers be demanding to see from prospective 1031’s they’re considering in order to assure themselves the 1031 is in fact a “safe harbor” and their funds will in fact not be absconded with? What regulations is the FEA promoting at any governmental level that would ensure the security of exchanger funds, the integrity of 1031’s, their owners and staff, and what penalties (criminal, financial, etc.) are they proposing in the event there is criminal activity?

  6. Pingback: Former Vesta Strategies Employee Speaks Out: Victim Investors and Employees? « DeansGuide

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