In alleged Ponzi scheme, no cash back, no trial set [Detroit Free Press]

July 23--In late July 2009, Kendra Sparks and her husband, David Bochniak, received the shock of their lives: The real estate fund in which they had invested half a million dollars turned out to be an alleged $55-million local Ponzi scheme. Today, they are on the verge of losing their home. Bochniak had to cut short his retirement and is working nights at Home Depot for $8 an hour while trying to find a second job.

The Livonia couple are among 440 investors, most of them Michiganders, who still are waiting for justice in a case that grabbed headlines a year ago. On July 26, 2009, the U.S. Securities and Exchange Commission sued former Brighton resident John Bravata, the founder and chairman of Southfield-based BBC Equities, shutting down his companies and freezing his assets.

Bravata is being investigated by a grand jury. The SEC case has dragged on with little to show for it, and a trial is at least another year away. And a court-appointed receiver says there's little chance investors will get much money back.

Bravata's attorney insists his client is innocent.

A few of the investors already have lost their homes. Others, such as Kathleen Scherer of Taylor, are struggling to start over after seeing a lifetime of savings suddenly vanish. And for some, the supposedly safe investment that turned into a nightmare has changed who they are.

"I don't trust anybody," said Gerald Burak, an out-of-work electrician in Chesterfield Township who lost $400,000. "I don't believe anything anymore."

Properties are underwater -- and lawyer gets paid first

When federal securities regulators halted an alleged $55-million Ponzi scheme almost a year ago, none of the 440 victims could have imagined that the man being charged with fraud would be given the opportunity to buy back some of his company's real estate that the government had seized.

But that's exactly what happened.

Despite a court-ordered freeze on his assets, earlier this year Bravata made some bids for properties owned by his former real estate investment company that were put up for sale by a court-appointed receiver. In late April, U.S. District Judge David Lawson even approved the sale of one property, a home in Three Rivers, to Bravata for $16,500 in cash.

Bravata ultimately backed out of the deal, according to his Atlanta attorney Gregory Bartko. He said Bravata is not raising money to do more real estate investment deals, but is interested in some of the BBC properties that the receiver, Earle Erman, abandoned. "Some of these properties were cash-flowable properties and we still don't understand why the receiver threw them out the door," Bartko said.

So far, Bravata has not succeeded in buying back any of these properties. But some BBC investors are appalled that Lawson, who's overseeing the government's civil lawsuit against Bravata, has permitted this type of activity. Bartko described the situation as a "very unusual privilege." He wouldn't comment when asked whether Bravata is trying to create a new real estate business.

"This is crazy," said Johnny Cassar, a Canton resident whose 78-year-old mother lost $175,000, a big part of which was going to be donated to St. Jude Children's Research Hospital. "He's got his freedom and people have to go back to work."

He and several other investors believe they should have a say in what happens to the properties because their money was used to purchase them. Instead, they have received little information from Erman.

"We totally got screwed," said Kathleen Scherer, a nurse who no longer goes out to eat or takes vacations after losing $300,000. "I just feel there is no justice system."

Erman, who has been selling BBC's assets to recoup money for investors, told the court in a March report that "there does not appear to be a reasonable prospect of any significant recovery for creditors and investors." Of BBC's 70 properties, 53 were underwater -- or worth less than the mortgages on them.

Any proceeds from the sale of the remaining properties and other assets, such as Bravata's 1995 Ferrari and 2007 Maserati, will go first toward paying Erman, whose fees in mid-March totaled more than half a million dollars. Erman declined to comment, citing the U.S. Securities and Exchange Commission case.

What's happened to BBC investors isn't unique. By the time most Ponzi schemes are exposed, most of the money is already gone. "If investors get a nickel on the dollar back, they are lucky," said Peter Henning, a Wayne State University Law School professor and white-collar crime expert.

Bravata, who's now spending time in Michigan, Florida and Colorado, has not been charged with criminal wrongdoing, but is under investigation by a grand jury. He declined to comment.

"I believe the SEC has not adequately shown anything close to the allegations of a Ponzi scheme or anything close to the allegations of fraud," Bartko said. "Here they are a year later and they are no further than when they filed the lawsuit."

The SEC shows no signs of backing down. When asked how confident the agency is of winning the case, Jonathan Polish, one of its attorneys, said, "I'm very confident. Many of the allegations in our complaint Bravata is not going to be able to dispute. It was a Ponzi scheme."

Both sides expect Lawson soon will release his opinion on Bravata's request to unfreeze some or all of his assets.

Bartko, a securities lawyer from Traverse City, continues to represent Bravata despite being indicted in November in Raleigh, N.C., for fraud, conspiracy and other charges for allegedly selling fraudulent investments. Bartko's trial is scheduled to start in November. He would not discuss whether he has been paid for representing Bravata.

Bravata, a former New York Life Insurance executive, formed BBC in May 2006, and later that year began selling shares in a real estate investment fund that offered investors annual payments equal to 8% to 12% of their money. The SEC alleges that less than half of investors' money ended up in real estate investments. More than $5.5 million allegedly was used to support Bravata and his family's lavish lifestyle, which included $87,000 in jewelry, hunting vacations in Russia and Canada and building a luxury home in Brighton.

"The fundamental allegation is that he lied to investors, and you are not allowed to lie to investors," Polish said. "We're anxious for our day in court. There are a lot of people that have been impacted by this."

In October, Bravata was called as a witness but refused to talk, invoking his Fifth Amendment right. In legal filings, Bartko disputes the SEC's claims that BBC defrauded investors by promising guaranteed returns. He says materials sent to investors disclosed that money from new investors could be used to make payments to earlier investors, because BBC was not yet generating significant income. The company was a legitimate business that the SEC destroyed, Bartko alleges.

"John is a fighter," he said of Bravata. "He's got a lot of energy and he's doing what he's doing to maintain his family. It isn't easy."

But Bartko had few words of comfort to offer BBC investors, calling the loss of retirement money "tragic."

BBC investors now must wait at least another year, if not longer, for Bravata's trial to begin. That likely will come too late for Kendra Sparks and her husband, David Bochniak, who expect to lose their home in December. Sparks lost her job at a linen company two weeks after the SEC filed its lawsuit against Bravata, and still is looking for work.

Bochniak, 55, spent 35 years at AT&T and took a buyout in March 2009, with plans to retire. A month later, he invested all of his retirement savings, $525,000, in BBC securities. Now it's all gone.

"At 55, what's a person supposed to do?" Sparks asked.

Contact KATHERINE YUNG: 313-222-8763 or

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