Nightingale’s Elie Schwartz pleads guilty in massive crowdfunding fiasco

Elie Schwartz has pleaded guilty to wire fraud for his role in a multimillion crowdfunding scandal that sent shockwaves through the commercial real estate industry.

Schwartz, the CEO of Nightingale, caused 800 investors to send about $62.8 million for real estate investments that he diverted for his own use, according to federal prosecutors. He faces a maximum sentence of 20 years in prison.

About $54 million was supposed to go toward projects including the acquisition of an Atlanta office complex. The rest was targeted for a recapitalization of a Miami Beach office building.

“Seeking to do nothing more than pad his own bank accounts and buy expensive luxury items, Elie Schwartz betrayed hundreds of investors who sought the opportunity to invest in these commercial real estate projects,” said Acting U.S. Attorney Richard S. Moultrie, Jr, in a statement.

Schwartz raised funds for the Miami Beach and Atlanta projects through the crowdfunding platform CrowdStreet. The investor funds were supposed to be held in bank accounts exclusively designated for those properties.

But CrowdStreet did not hold those funds in an escrow account. Schwartz instead had control of the funds, and the freedom to transfer the funds into personal accounts.

“Schwartz represented that he would only use the investors’ money to fund the investment in each property and that he had a fiduciary duty to safeguard the funds,” the Department of Justice wrote in a press release on the case.

But Schwartz spent at least $12 million of these funds to bet on First Republic’s stock and stock options prior to the bank’s seizure by regulators. Other funds went to extravagant personal expenses, including the purchase of luxury watches like a 1941 Remontoire.

The scandal first erupted in the summer of 2023 when an independent manager held a webinar for investors, where it was revealed most of their money had been misappropriated. The manager put the entities tied to the CrowdStreet investor’s money into bankruptcy protection in Delaware.

Schwartz settled with the investors in October 2023. As part of the settlement, he agreed to pay $54 million in quarterly installments by selling off the Miami Beach office property and placing liens on other assets. By the second payment, he was already in default.

Schwartz did not respond to a request for comment.