When real estate crowdfunding investment platform Fundrise fired its CFO and treasurer Michael McCord over what the company alleged was an attempted extortion of more than $1 million the story quickly made the news rounds. In a letter to investors, the firm’s general counsel revealed that the extortion was tied to McCord’s threat to reveal deals that were “inappropriately handled,” though the company expressed belief the allegations were untrue. But McCord quickly denied the charges of extortions through an interview with the Washington Post. In his version of events, Fundrise executives showed him the door after he raised concerns about “seriously fraudulent behavior” at the firm. Neither Fundrise nor McCord specified what the “inappropriate handling” or “fraudulent behavior” referred to.

The firm has since Fundrise hired Benjamin S. Miller as its interim CFO and treasurer. Miller’s background includes launching his own real estate crowdsourcing website in 2011, Popularise LCC.

In quite possibly the most stomach-turning scandal to date, about 30 seniors were allegedly defrauded of more than $2.7 million by two brothers who claimed to run a real estate investment firm called Robbins Lane. According to a complaint filed with the SEC, the brothers, Matthew and Daniel Rivera, told the seniors they would be guaranteed a monthly income based off proceeds of redeveloping and flipping investment properties. The two men set up a website that made claims including the following: “our investors receive a high yield on their investment; often 2 percent to 4 percent above current yields available from CD's, annuities, or other forms of investment trusts“ and “higher returns for the senior investor mean a more secure and well-rounded lifestyle for the future. This offers the senior investor the possibility of living well beyond the ‘just meeting basic needs’ threshold.”

In reality, the investment strategy was totally fictitious in nature, according to the SEC documents, since the Riveras simply pocketed the money for personal use and to repay other investors. According to the SEC complaint, “investor funds were used to purchase tickets for sporting events, to pay for college tuition and sorority dues for Daniel Rivera's daughter, to pay personal credit card bills, for transfers to two entities that Daniel Rivera controlled, Relief Defendants Rivera & Associates and Daniel Rivera Inc., and for transfers to a janitorial business in which Matthew Rivera was a partner.” The regulatory agency ordered the Riveras to pay more than $1.9 million combined in disgorgement and prejudgment interest. Additionally, Daniel Rivera was ordered to pay a $160,000 civil penalty and Matthew Rivera, a $100,000 civil penalty. The two men’s companies were ordered to pay more than $500,000 combined in disgorgement and prejudgment interest.

On Feb. 18, the FBI raided the offices of residential REIT United Development Funding, in Grapevine, Texas, after Hayman Capital Management’s Kyle Bass alleged the firm operated a $1 billion ponzi scheme. UDF had been facing an SEC investigation since 2014. It stands accused of making “improper real estate loans, mishandling funds and defrauding investors,” according to the Dallas Morning News.

The CEO and several high-level executives at shopping center REIT Brixmor Property Group, including the CFO and chief accounting officer, resigned in early February after the company conducted a review of its financial results and found evidence of “smoothing income items, both up and down, between reporting periods in an effort to achieve consistent quarterly same property net operating income,” according to Financial Review and other publications. The company reported its findings to the SEC. In the immediate aftermath of the discovery, the REIT’s shares dropped by more than 20 percent.

In December 2014, Nick Schorsch, the chairman of mega-REIT American Realty Capital Properties, stepped down along with company CEO David Kay and COO Lisa Beeson, after an audit revealed that American Realty Capital’s adjusted funds from operations (FFO) were overstated by $23 million. Under Schorsch’s command, American Realty Capital became the biggest owner of single tenant net-leased properties in the country, with 4,400 assets and a market value of $7.6 billion. “It’s unprecedented to have three top executives at one of the largest REITs in the world step down on the same day,” Kevin Gannon, managing director of investment bank Robert A. Stanger & Co, told the Wall Street Journal. 

In February, a Chicago jury found local developer Larry Freed guilty of bank and mail fraud and making false statements to a financial institution in connection with his attempts to secure $105 million in new lines of credit on his properties. He now faces up to 230 years in prison. Freed, the developer of the 285,000-sq.-ft. mixed-use Block 37 project in Chicago, as well as the owner of the Streets of Woodfield in nearby Schaumburg, Ill., falsely recorded money he withdrew from a partnership on the Streets of Woodfield as “loans,” according to the prosecution, and fraudulently acquired up to $2 million in tax increment financing form the city of Chicago.

Cabot Investment Properties CEO Carlton P. Cabot and COO Timothy J. Kroll face the possibility of 115 years in prison on charges including securities fraud, money laundering, wire fraud and illegal monetary transactions. According to the U.S. Department of Justice, the two men allegedly misappropriated funds worth $17 million, using the money both for personal expenses—such as luxury apartment rentals, sports cars and private school tuition—and to inflate the true value of their investor portfolios. In the early 2000s they grew an empire selling tenant-in-common securities to commercial real estate investors. But following 2008’s financial crisis and real estate downturn, the men allegedly kept upside-down investments afloat through illegal transfer of funds from CIP operating accounts. Investor money was also used to pay nearly $1.2 million to settle a civil case brought against Cabot and Kroll by some of their tenant-in-common investors.

A federal ruling came down in another tenants-in-common securities fraud case when Ken Sarna, director of operations for Heaven Investments Holding Corp., was sentenced to two and a half years in prison. Heaven Investments Holding CEO Akhbar Bhamani and his two sons, who served as vice presidents in the family-owned company, also received prison time. The firm’s executives managed to wrangle $30 million in investments selling tenants-in-common investments, a win for any property holdings group. The caveat? Heaven Investments was not licensed to sell these types of securities! But why stop there? Using the web and investor forums, the company pitched these investments as akin to 1031 exchanges. Investors lost from $2 million to $7.5 million as a result of this scheme, the U.S. Attorney’s office said. The company continued to sell investments in 2008 as it prepared to declare bankruptcy. In 2010, the feds charged executives with fraud to the tune of $11.4 million.

In December 2015, the U.S. Department of Justice charged Tishman Construction Corp. with fraud for overcharging on imaginary construction work. The firm was charged with mail and wire fraud conspiracy for billing clients more than $5 million over a 10-year period for work that was never actually done, and at excessive rates to boot! To avoid prosecution, Tishman agreed to pay restitution of $20 million to its victims and the government, as well as to launch a reform of its business. Properties named as part of the investigation included the Aqueduct Casino, the Plaza Hotel renovation, and the Javits Convention Center expansion and renovation project, all in New York City and its vicinity. But most egregiously of all (to New Yorkers at least) was the inclusion of One World Trade Center on the list.

“Through a systemic practice, Tishman Construction bilked its clients by charging them for unworked time and at rates higher than those bargained for by their clients. By doing so, Tishman Construction defrauded its clients and abused the trust placed in it to provide construction services on some of New York’s most storied buildings,” said Robert L. Capers, United States Attorney for the Eastern District of New York, in an official statement.

In February, Richard Marini, president of New York-based engineering firm Avanti Building Consultants, was sentenced to one to three years in state prison for fraudulent practices related to ensuring building safety at construction sites. The company, which was supposed to provide qualified safety managers to inspect the sites, instead hired untrained people from Craigslist, including musicians, to impersonate safety managers instead.

Marini was first indicted in 2014. A New York City District Attorney announcement of the indictment described the following: “Marini hired short order cooks, window treatment specialists, hotel bellhops, hairdressers, eBay vendors and even a musician to work as supposed ‘interns’ for Avanti. Marini then instructed these individuals to go to job sites and sign the safety logs in their own names or in the names of licensed site safety managers that Marini provided to them.”

The January 2015 arrest of New York Assembly Speaker Sheldon Silver—on corruption charges surrounding the use of his political position to induce real estate developers and other real estate industry players into paying him bogus fees—sent shockwaves through the industry. It brought to the fore big names that normally avoid the spotlight, such as New York luxury apartment building owner Glenwood Management.

Less than a year later, in December 2015, former New York State Majority Leader Dean Skelos and his son Adam would be found guilty on eight counts of bribery, conspiracy and extortion, including forcing a real estate developer to pay Adam Skelos for his “consulting work.” Glenwood would resurface in affiliation. Tishman Speyer was also mentioned in the complaint against Skelos (Adam Skelos sought title insurance from the developer). The company wasn't charged with any wrongdoing, however.

The EB-5 program continues to be a source of controversy. Under the terms of the program, foreign investors can contribute at least $1 million to a development project in the U.S. and, in turn, receive a U.S. visa. But they can also obtain the coveted visa if they give $500,000 toward a project in an area suffering from high unemployment, or “Targeted Employment Area.” However, in some cases, the money has been used to build ultra-luxury high-rises in swanky neighborhoods, including the Witkoff Group’s 39 Central Park South in New York City, where residents will be paying $13,000 per sq. ft. For the time-being, however, the EB-5 program has been extended.