Michael Shustek, the founder and chief executive officer of several real estate investment trusts, has been charged by The Securities and Exchange Commission with securities fraud, along with his investment advisory firm, Vestin Mortgage LLC.
Shustek founded The Parking REIT, a non-traded REIT formed by the December 2017 merger of MVP REIT and MVP REIT II, that invests in parking lots and garages.
The SEC alleges that since at least 2012, Shustek “fraudulently enriched” himself and The Parking REIT at the expense of two publicly-traded REITs that he had founded: Vestin Realty Mortgage I and Vestin Realty Mortgage II. The SEC claims that Shustek “drained” $29 million from the Vestin REITs in order to funnel the money into the newer Parking REIT venture.
“Despite the amount of money involved and the complexity of the payment trails, Shustek disregarded even the most basic elements of legitimate, arms-length transactions,” the SEC stated in its complaint. “There were no written contracts governing the transfers of money between [the Vestin REITs] and the Shustek-intermediary companies, nor any written agreements between [the Vestin REITs] and The Parking REIT.”
The SEC also alleges that Shustek directed the REITs to enter into a series of “money-losing transactions” in which the same six buildings were repeatedly re-sold, “all to benefit himself and The Parking REIT.” The regulator further alleges that Shustek deceived the Vestin REIT boards and violated his fiduciary duties to those companies in two separate securities transactions to get the companies to pay him nearly $10 million.
Lastly, the SEC claims that Shustek repeatedly misled investors by causing the Vestin REITs to make false and misleading statements in their public filings, which hid his “self-dealing.”
Shustek’s attorney, Manny Abascal of Latham & Watkins LLP, said that Shustek “looks forward to contesting these old and unfounded claims and clearing his name.”
“Mr. Shustek is a successful real estate entrepreneur and an integral part of the Las Vegas business community,” Abascal said in a statement. “The SEC’s complaint falsely claims that several years ago Mr. Shustek took advantage of two companies, without stating that he is the founder and largest shareholder of those very same companies. Mr. Shustek has successfully led those companies for over 20 years, surviving multiple recessions, a pandemic, and more recently a relentless three-year investigation spawned by disgruntled former business partners.”
In 2006, the SEC suspended Shustek for six months and ordered him to pay a $100,000 fine after he was accused of making “material misstatements” about the performance of two Vestin funds in various slide presentations at seminars that he conducted nationwide.
In August 2019, The Parking REIT scrapped plans for a $100 million initial public offering less than a year after filing a preliminary prospectus with the SEC. Earlier this year, the REIT announced plans to sell a majority stake to an affiliate of Bombe Asset Management LLC, a Cincinnati-based alternative asset management firm, for more than $125 million ($35 million in cash and $90 million in properties).
The SEC’s complaint, which was filed in the District of Nevada, charges Shustek and Vestin Mortgage with violating the antifraud provisions of various federal securities laws and seeks disgorgement plus pre-judgment interest, penalties, permanent injunctions, and a bar against Shustek.
The Parking REIT invests primarily in parking lots and garages in the United States and oversees a portfolio of 37 parking facilities. The company commenced operations in December 2015 and raised approximately $61.3 million in the initial public offering until closing in March 2017. The REIT suspended distributions and share repurchases in 2018.