It’s been more than a year since Nightingale Properties CEO Elie Schwartz was first accused of embezzling more than $50M from crowdfunding investors who funneled cash into two failed real estate deals.
While the New York-based developer struck a deal last October to pay back the missing millions, it has been six months since Schwartz stopped making payments as part of that settlement. The trustee overseeing the recovery process, in a webinar with the burned investors this month, acknowledged the biggest question now lingering over the unresolved scandal.
“A couple of you have asked, ‘Why the hell isn’t he in jail yet?’” Anna Phillips, the trustee, said on the Oct. 18 webinar, a recording of which was obtained by Bisnow. “The answer is that charges can only be brought under criminal law that result in prison time, and that can only be pursued by the government.”
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Phillips revealed last August that the Department of Justice and Securities and Exchange Commission were investigating Nightingale and Schwartz over the alleged theft of the funds, which he raised on the CrowdStreet crowdfunding platform with the intent to buy a huge office complex in Atlanta and refurbish a commercial building in Miami Beach.
More than a year later, spokespeople for the DOJ and the SEC declined to comment about any investigation, but Phillips told investors she is still communicating with law enforcement looking into Schwartz’s dealings.
“There’s no doubt the feds are all over it,” she said on the webinar. “There’s nothing I can say about the time they take to do things, frustrating though it is. But I can assure you his file is on their desk, and they’re definitely working on it, based on the dialogue that they have with our counsel.”
Schwartz didn’t respond to a request for comment.
While it is unclear when or if criminal charges will be filed, the CrowdStreet investors — who each put at least $25K of their own money into the deals — are coming to grips with the possibility that they will never get most of their money back.
“There doesn’t seem to be any real good light at the end of the tunnel for the investors to expect any material payment or distribution,” said Stoltmann Law Offices attorney Joe Wojciechowski, who is representing 16 investors in the deals in a dispute against CrowdStreet.
“I think it would be unreasonable for any investor to expect that Schwartz will come up with anything material,” he said. “People are pissed. They feel like they’ve been ripped off, and rightfully.”
Phillips, who was appointed last year to manage the CrowdStreet investment entities Schwartz created, has already distributed some funds to investors — although they have been pennies on the dollar to this point. But even those payouts have been suspended after Schwartz failed to file a tax form.
Nightingale’s attorneys from Jones Day and Richards, Layton & Finger withdrew from representing the firm, according to a filing in bankruptcy court last month, claiming they were owed “a substantial amount” and hadn’t been paid for at least four months.
Schwartz’s companies told the attorneys “that they do not have funds or assets sufficient to pay” either the fees they already owe or fees in the future, according to the filing. Schwartz is no longer being represented by outside counsel.
“I suspect in his criminal proceedings, Schwartz will then be represented, I think, by a public defender,” Phillips said on the webinar. “From our perspective, most of our dealings now are simply directly with Mr. Schwartz.”
Nightingale raised $54M in equity via CrowdStreet in the summer of 2022 in a bid to acquire the 915K SF Atlanta Financial Center office complex in Buckhead. A few months later, it raised roughly $9M to renovate and recapitalize 1601 Washington Ave. in Miami Beach, which was vacant after Starwood had previously used it as its headquarters.
But neither deal closed, and last May, CrowdStreet told investors it couldn’t account for where the funds were.
Atlanta Financial Center in Buckhead
The drained accounts were handed over to Phillips, who put them into bankruptcy in July 2023 when she found out that less than $150K remained of the original $54M.
During the restructuring process, she and a group of forensic attorneys determined that Schwartz had siphoned millions into his own accounts. They claimed Schwartz used the money to pay for jewelry, art and watches, as well as diverting the funds to other investments — including $12M in First Republic Bank stock and options in the weeks before it failed.
Schwartz agreed to a settlement in October 2023 to pay back the investors in installments. He made the first payment in January, but he hasn’t made one since, defaulting on the settlement agreement. The bankruptcy judge overseeing the case greenlighted Phillips’ seizure of Schwartz’s assets as a result.
Phillips has had some success in recovering investors’ money by pursuing third parties who had received funds via transfers from Schwartz.
She said investors who put money into the failed bid for the Atlanta Financial Center have recovered roughly 14 cents on the dollar. For every dollar invested in the Miami Beach project, investors have recouped less than 17 cents.
Future distributions have been halted, however, because the IRS slapped the two entities with a $1.5M bill after Schwartz failed to file tax extensions in 2023, Phillips said. She added that the trust is disputing the bill with the IRS.
“Frankly, I’d like to avoid having to spend money to fight the IRS and what they’re claiming in court,” she said. “But we certainly will do what we need to do to get this claim out of the way, but it does involve, therefore, a pause in distributions until the IRS claim has been disposed of.”
Investors in the Miami Beach deal were on the precipice last year of recovering all of their losses when Nightingale announced it struck a deal to sell 1601 Washington Ave. for $82M. But four months after the deal was announced, the sale fell apart, with Schwartz and the prospective buyers, Miami-based Black Lion Partners and Massa Investment Group, suing each other over a $2M deposit.
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 in October 2023.
Phillips addressed the potential of selling Schwartz’s various commercial real estate holdings, including his 6K SF penthouse at 1 West End Ave. in Manhattan. Schwartz bought the pad for $21M in 2018, and it is listed for $19M. It has been on the market since June 24.
He has also agreed to sell his mansion in Englewood, New Jersey, to pay back investors, according to the settlement. Schwartz listed the property in September 2023 for $4.5M, then cut the asking price to $4.1M in March, according to the New Jersey multiple listing service. It briefly went under contract in May before returning to the market in June.
The trust also placed liens on several of Nightingale’s commercial holdings and is trying to push for asset sales on those properties. While Phillips hasn’t specified which buildings she is targeting, several LLCs Schwartz controls tied to his commercial holdings are mentioned in the settlement agreement as on the table for seizure.
Those buildings include The Labs on 121, a 160K SF life sciences and office building in Harlem owned in partnership with Real Estate Equities Corp., plus three Philadelphia office towers, 1835 and 1635 Market St. and 1500 Spring Garden St., all co-owned with InterVest Capital Partners.
Phillips warned investors on the call she was unsure just how much, if anything, the trust would gain from those sales, as senior lenders would have to get paid first, as could some of Schwartz’s co-investors.
“Regarding the commercial real estate holdings, these continue to deteriorate in value and, frankly, any equity in the majority of them is at risk of being wiped out,” she said.
Nightingale’s commercial real estate portfolio is largely made up of older office buildings in urban centers, a segment of the market that has been particularly challenged.
Phillips’ team, which includes BakerHostetler partner Jorian Rose, the attorney representing the entities in bankruptcy court, is also pursuing those to whom Schwartz diverted money.
In August, she subpoenaed Nakash Holdings, a company run by the family that owns the fashion brand empire of Jordache, XOXO and U.S. Polo Assn., Bisnow previously reported. Nakash conducted business with a Schwartz affiliate called One Night Holdings LLC, to which Schwartz transferred $26.5M from the Atlanta Financial Center account.
One clawback attempt has been successful. An affiliate of Sumitomo Corporation of Americas, which still owns the Atlanta Financial Center after the failed purchase bid, agreed earlier this year to pay the trust $3.25M, according to court documents. Phillips claimed Schwartz had transferred $5M to Sumitomo’s affiliate.
Beyond real estate, the trust has been liquidating Schwartz’s personal collection of art and luxury watches to garner proceeds for the investors, a process Phillips said continues.
“I think we’re going through all of his assets to liquidate them to the highest value we can,” Rose said. “[The investors] hopefully know we’re doing what we can to provide them as much of a distribution as possible.”
But just like the office holdings, selling the watches has been a difficult process because of how far values have fallen.
“Schwartz managed to buy the watches at the peak of the market,” Phillips said. “They are all being actively marketed, and they are being sold slowly but surely.”
But one investor, who spoke to Bisnow on the condition of anonymity out of concern CrowdStreet would retaliate against him, said he has lost hope that he and the other investors will recover much more from Schwartz at this point.
“To be honest, I have come to the conclusion there is very little or any monies for investors,” the investor said. “When the trustee is spending time discussing the luxury watch market, things are bad.”
