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   Consumer Victory in Timeshare Scandal

Timeshare Con Artist Michael E. Kelly Brought Down By SEC

Consumers everywhere won a small, rare triumph early in September of 2007 when the Securities and Exchange Commission filed lawsuits against 26 independent perpetrators of a massive Mexican timeshare scandal. Although multiple entities were charged, the suits center on timeshare racketeer Michael E. Kelly (pictured right), who was arrested in December of 2006 on counts of fraud and conspiracy to commit fraud. Kelly owns Yucatan Resorts, Resort Holdings International, Puerto Cancun and Avanti Motor Corporation, manufacturer of semi-customized sports cars.

The timeshare scam operated out of Cancun, and pitched thousands of consumers the promise of a stable income provided by vacation properties. Several individuals, many of them retired, were unfortunately taken in by the scheme. Company representatives sold timeshares in various hotels that were claimed to be then leased by another agent to generate fixed returns. However, these further transactions never occurred. Whenever a new customer would sign up and pay the upfront fees, the company would take a percentage of this new cash to make “rental payments” to earlier owners while pocketing the bulk of these figures. The leasing “agent,” described in sales pitches as a large conglomerate, was in fact a small travel agency run entirely by Kelly. None of the properties sold to “investors” were ever leased out for any sum.

"Kelly and his cohorts told investors they were purchasing a safe, high-income investment suitable for a retirement account,” says Linda Chatman Thomsen, Director of the SEC's Division of Enforcement. “In reality, investor funds were at grave risk as investor funds were used in a way that guaranteed the collapse of the scheme."

Kelly and his team managed to raise $428 million between 1999 and 2006 from this sly swindle. According to the SEC over $136 million of the proceeds were from individual retirement accounts. Brokers working the fake timeshares earned commissions totaling $72 million before being caught.

These lawsuits are part of a larger initiative to protect older Americans from frequent scandals both at home and abroad. Studies have shown that the share of wealth owned by U.S. retirees makes the demographic a prime target for scams. As the SEC’s regional director Merri Jo Gillette puts it, the organization “plans to aggressively seek recovery from the defendants to offset the huge losses they inflicted.” This initiative has made over forty enforcement actions in the last two years.

Michael Kelly has pleaded not guilty to his criminal charges. During pretrial investigations he claimed his yearly income as $55,000 and his total assets $48,000, despite offering a private jet, four yachts and race track as collateral at his detention hearing. He will stand trial later in this year or early 2008.

 

View the original SEC press release

View Michael Kelly's Wikipedia page