A Chicago area rabbi who formerly owned a nursing home chain at the heart of the largest failure in federal mortgage guarantee program history has been charged by federal authorities for paying millions of dollars from investors.
The indictment against Zvi Feiner and a business associate, Erez Baver, is the latest chapter in the year-long saga involving the nursing home chain Rosewood Care Centers, which is primarily located in the Chicago suburbs.
The $ 146 million loss in 2018 was the worst ever for a program that insures mortgages on around 15 percent of nursing homes in the country. Subsequently, the Department of Housing and Urban Development, which manages the mortgage guarantee program, tightened up some of its underwriting and verification processes.
The Rosewood chain, renamed by the new owners, was part of a network of nursing homes that Mr. Feiner, 50] and Mr. Baver bought after raising money from investors in the Orthodox Jewish communities in Chicago and New York.
Federal authorities said the two men misled investors about the nursing homes financial health and ran it as a Ponzi scheme by using money from new investors to pay previous ones and skimming cash for themselves. The allegations are similar to those of a fraud lawsuit filed by the Securities and Exchange Commission last year and previously filed investor lawsuits by the New York Times.
In addition to wire fraud charges, federal agencies are attempting to recover $ 13.56 million from Mr. Feiner and $ 3.76 million from Mr. Baver.
Mr. Feiner was employed by the F.B.I. last Tuesday, but the US attorney for the Northern District of Illinois didn't announce the charges until late Monday. Mr. Feiner pleaded not guilty and was released after posting bail of $ 4,500. Mr Baver was due to be charged on Wednesday.
Lawyers for the men were not available to comment.
Mr. Feiner paid HUD a $ 1 million fine last year for failing to submit audited financial reports required by the mortgage insurance program for several years. He also has an agreement in principle with the S.E.C. in his lawsuit.
Problems in Rosewood were so dire that the federal government went to court in 2019 to appoint a beneficiary to run their dozen nursing homes and an assisted living center.
After the beneficiary was named, HUD had to pay $ 30 million in fees to pay for alimony. Greystone, a lender and nursing home operator, bought the Rosewood facilities for $ 81 million in January.