Nightingale Properties CEO Elie Schwartz’s plan to pay back the crowdfunding investors he allegedly swindled out of more than $50M in quarterly installments has fallen apart after he missed a critical deadline last week.
Now those investors are moving to seize Schwartz’s assets and force him to pay back what he owes — nearly $55M — immediately, according to new court filings. The trustee managing the effort said Friday she is already in possession of a number of Schwartz’s watches and pieces of jewelry that she plans to liquidate.
The acceleration is the latest twist in the saga of Schwartz, Nightingale and two failed deals for which he raised equity on the CrowdStreet real estate crowdfunding platform.
Nightingale raised more than $63M combined in 2022 to buy an Atlanta office complex and recapitalize a Miami Beach office building. But last year, the deals fell apart, the entities created for the transactions were placed into bankruptcy, and the fiduciary appointed to manage them, Anna Phillips, discovered that nearly all of the money was missing.
Phillips said last year she discovered that some of that money was spent on watches and jewelry, some was wired to third-party accounts, and $12M was put into stocks and options in First Republic Bank just before it failed.
Schwartz agreed to a settlement in October to repay all of the misappropriated money in quarterly installments, then made the first payment in that plan in January. The second payment, set to total $4.5M, was due by April 12. Schwartz failed to come up with the money, and Phillips on Thursday filed a motion in the U.S. Bankruptcy Court for the District of Delaware asking a judge to enter a collection judgment against him.
In a Friday afternoon webinar with investors in the two deals, Phillips called the motion a “necessary first step” toward repayment. Bankruptcy Judge Craig Goldblatt scheduled a hearing on the motion for May 17.
“This is obviously extremely disappointing,” Phillips said on the webinar, a recording of which was obtained by Bisnow. “We have received no indication from Mr. Schwartz when or if any additional payments will be made to us pursuant to the settlement agreement that he entered into.”
The first $3M Schwartz paid was used to pay for the bankruptcy proceedings, Phillips said, including attorneys and other professional fees. The second installment would have been the first money distributed to investors, but none of the $54.9M in misappropriated funds have been repaid.
“There’ll be no distribution at this time,” she said. “But I will be distributing funds as I collect sufficient further funds on your behalf. And as I will discuss, we do believe that the clawback claims that we are currently pursuing will result in distributions.”
The settlement agreement allows Phillips, as the liquidating trustee of the bankrupt investor entities, to place liens on Schwartz’s assets to ensure repayment. Phillips said she is in possession of Schwartz’s watches and jewelry, “with the exception of two pieces,” and is “working with [Schwartz] to liquidate personal assets.”
Those include Schwartz’s $18M penthouse at 1 West End Ave. in Manhattan and a mansion in New Jersey he has listed for about $4M.
Schwartz also controls millions of square feet of office space on the East Coast, but going after the equity tied up in those assets is highly complicated. Now, with liens on Nightingale’s commercial real estate holdings, Phillips said the liquidation trust is looking to move to force their sales.
“Regarding the commercial real estate holdings, we’re currently assessing where the value resides as of today and how to cost-effectively realize that value,” she said.
Courtesy photo
Anna Phillips, the fiduciary who took over managing the entities created for the failed Nightingale Properties investments on CrowdStreet, speaks on a webinar to investors on Oct. 13.
Part of the issue is several of those properties are being foreclosed on — and more foreclosures are likely, she said. And while the liens the investors have on Schwartz’s assets put them ahead of many other parties, they are behind the mortgage holders on those buildings.
Schwartz had already tried to sell 1601 Washington Ave. in Miami Beach, the building he raised $9M on CrowdStreet to recapitalize, but that $82M sale collapsed in a flurry of litigation in January. Phillips said Friday Schwartz is continuing to look for a buyer for that building.
Schwartz’s default under the agreement activated a clause that requires CrowdStreet to start funding some distributions to investors, but Phillips said those payments won’t start until next year.
Phillips and representatives for Schwartz and CrowdStreet didn’t respond to requests for comment by press time.
The CrowdStreet investors aren’t the only parties looking to collect from Schwartz.
Earlier this month, the landlord for Nightingale’s offices at 1430 Broadway in New York City sued Schwartz and the company for failing to pay monthly rent on their office space, with unpaid bills since last August totaling more than $339K.
On April 8, New York Supreme Court Judge Suzanne Adams ordered Schwartz to repay JPMorgan Chase more than $10.5M, plus 9% interest, on a line of credit the banking giant granted him in 2022. Schwartz was accused of breaking covenants attached to the line of credit, including keeping at least $7.5M in unencumbered liquid assets, The Real Deal previously reported.
A New Jersey-based ear, nose and throat physician, Dr. Daniel Samadi, sued Schwartz in March for failure to repay a $1M personal loan he gave the Nightingale CEO in July 2023, just after Schwartz’s misappropriation of the CrowdStreet investor money became public. The $1M loan had a term of six months and an interest rate of 15%, and Schwartz never repaid, Samadi claimed.
Also this week, New York Supreme Court Judge Jennifer Schecter ordered Schwartz and his equity partner in the office building at 20 E. 46th St. in Manhattan to go to arbitration after the $30M loan they took out against the building was foreclosed on last year. Schwartz’s partner in the building, Crown Merchandise Corp., claims he mishandled the investment and pushed to hand over the building to the lender rather than resolve the default.
Phillips also told investors on Friday’s webinar that federal agencies were aware of Schwartz’s failure to make the second payment but said she was unsure if and when they would take any action. Bisnow previously reported that the Department of Justice and Securities and Exchange Commission were investigating Schwartz and Nightingale over the missing millions.
She also said the trustee would make authorities aware that Schwartz has rebranded his company Nightingale Property Group and is soliciting investors for the purchase of a New Jersey office building. She said she discussed the offering with Schwartz, who isn’t putting any of his own money — to which CrowdStreet investors would be entitled — into the deal.
“I want to make clear that it was never the intention of the settlement agreement to stop Mr. Schwartz from earning a living and possibly help meet his obligations to investors,” Phillips said. “But we will absolutely be making sure that the government is aware of his involvement in this situation if they are not already.”
Ethan Rothstein contributed reporting for this article.
