PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 450 Park Avenue, 30th Floor New York, NY 10022
INTERNAL MEMORANDUM
TO: File — Matter No. 1034-00001
FROM: Conrad Ashby, Partner, White Collar & Investigations Daniel Obi, Associate, Banking & Finance
DATE: December 15, 2022
RE: Analysis of Potential Civil and Criminal Exposure of Jonathan R. Caldwell in Connection with Grand Jury No. 22-GJ-4481 (U.S. District Court, Southern District of New York)
PRIVILEGE LEGEND: This memorandum is protected by the attorney-client privilege and the work product doctrine. It was prepared in anticipation of litigation and reflects the mental impressions, conclusions, opinions, and legal theories of counsel. It should not be disclosed to any person outside the engagement team without express authorization of the undersigned. Any inadvertent disclosure of this memorandum does not constitute a waiver of any applicable privilege or protection.
I. Purpose and Scope of This Memorandum
This memorandum analyzes whether the factual record, as currently known and developed through our investigation to date, suggests that Jonathan R. Caldwell ("Caldwell" or "the Client") has any potential criminal or civil exposure arising from his business relationship with Marcus W. Stavros ("Stavros") and his investments in or through entities affiliated with Aegean Realty Partners LLC ("Aegean Realty" or "Aegean"). The analysis set forth herein is based on information available as of the date of this memorandum and is subject to revision as additional facts are developed through ongoing document review, government communications, and any further client interviews.
On November 18, 2022, a grand jury subpoena was issued out of Grand Jury No. 22-GJ-4481, empaneled in the United States District Court for the Southern District of New York. The subpoena was served on Caldwell at his residence at 1140 Park Avenue, Apt. 14C, New York, NY 10128, on November 21, 2022. The subpoena carried an original return date of December 9, 2022. Upon retention of this firm, we promptly contacted the government and obtained an agreement to extend the initial production deadline on a rolling basis, with the first tranche of documents due January 13, 2023.
On December 12, 2022, undersigned counsel conducted a telephone proffer with Assistant United States Attorney Miriam T. Goldfarb of the Complex Frauds & Cybercrime Unit, United States Attorney's Office for the Southern District of New York. During that call, AUSA Goldfarb informally confirmed that Caldwell is regarded by the government as a witness in the investigation and is not presently classified as a target or a subject. No formal target letter or subject letter has been issued to Caldwell. While this characterization is encouraging, we note at the outset — and discuss at greater length below — that witness status is an informal designation that can change at any time, and the government is under no obligation to provide advance notice of any change in status.
This memorandum is organized to accomplish the following analytical objectives:
(a) Summarize the government's known allegations and the scope of the investigation, as understood from the subpoena, publicly available information, and the informal proffer with AUSA Goldfarb;
(b) Catalog Caldwell's transactions and financial dealings with Stavros and Aegean-affiliated entities, including limited partnership investments, joint venture co-investments, distributions received, and the 2019 separation and buyout;
(c) Analyze each potential theory of criminal liability under the statutes believed to be at issue in the investigation — specifically, wire fraud (18 U.S.C. § 1343), bank fraud (18 U.S.C. § 1344), money laundering (18 U.S.C. § 1956), and conspiracy (18 U.S.C. § 371);
(d) Analyze Caldwell's potential civil exposure, including potential clawback or disgorgement actions, lender claims, and investor claims;
(e) Identify areas of factual sensitivity that warrant further investigation and monitoring; and
(f) Provide recommendations regarding Caldwell's posture in the investigation going forward.
The factual basis for this memorandum derives from: (i) a comprehensive client interview conducted with Caldwell on November 28, 2022, at our offices; (ii) documents collected during the initial document hold and collection process, which to date comprises approximately 14,200 documents sourced from Caldwell's personal email accounts, Caldwell Capital Advisors LLC files, Caldwell's personal financial records, and related custodial sources; (iii) a review of the grand jury subpoena and its specifications; and (iv) information gleaned from the December 12, 2022 proffer call with AUSA Goldfarb. We have not yet had access to any materials produced by other witnesses or entities in the investigation, nor have we reviewed any SEC filings or regulatory correspondence that may bear on the matter. Those additional sources of information will be reviewed as they become available, and this analysis will be updated accordingly.
II. Summary of the Government's Investigation
A. Nature of the Investigation
The federal investigation at issue is believed to have commenced in early 2022 and is being conducted through Grand Jury No. 22-GJ-4481, empaneled in the United States District Court for the Southern District of New York, located at 500 Pearl Street, New York, NY 10007. The investigation is being led by Assistant United States Attorney Miriam T. Goldfarb of the Complex Frauds & Cybercrime Unit of the United States Attorney's Office for the Southern District of New York. Based on our review of the subpoena issued to Caldwell and our conversation with AUSA Goldfarb, we understand the investigation to be principally focused on the business activities of a single individual and his affiliated entities.
The apparent primary target of the investigation is Marcus W. Stavros, age 54, who is the founder and principal of Aegean Realty Partners LLC. Aegean Realty Partners LLC is a Connecticut limited liability company formed on March 12, 2014, with its principal office at 280 Atlantic Street, Suite 510, Stamford, CT 06901. Stavros resides at 45 Saugatuck Lane, Westport, CT 06880. We understand that Stavros is represented in this matter by Victor A. Reddick of the firm Reddick, Sorrento & Hale LLP, located at 1 Liberty Plaza, 37th Floor, New York, NY 10006. We have not had any direct communication with Stavros's counsel, nor do we intend to initiate such communication absent a specific strategic reason to do so.
In addition, we have learned — through AUSA Goldfarb's statements during the December 12, 2022 proffer call — that the government has retained Meridian Forensic Advisors LLC as forensic accountants to assist in the investigation. Meridian Forensic Advisors LLC is located at 230 Park Avenue, Suite 1540, New York, NY 10169, and the engagement is being led by Managing Director Nathan P. Solis. The government's retention of a forensic accounting firm suggests that the investigation involves a detailed tracing of fund flows through the various Aegean Realty entities and related accounts, which is consistent with the nature of the allegations discussed below.
B. Suspected Offenses
Based on our review of the subpoena specifications and our conversation with AUSA Goldfarb, we believe the government is investigating potential violations of the following federal criminal statutes:
• Wire Fraud — 18 U.S.C. § 1343, which prohibits the use of interstate wire communications in furtherance of a scheme or artifice to defraud;
• Bank Fraud — 18 U.S.C. § 1344, which prohibits knowingly executing or attempting to execute a scheme to defraud a financial institution or to obtain money, funds, or other property from a financial institution by means of false or fraudulent pretenses, representations, or promises;
• Money Laundering — 18 U.S.C. § 1956, which prohibits conducting financial transactions involving the proceeds of specified unlawful activity with knowledge that the property involved represents proceeds of such activity and with the intent to promote the carrying on of specified unlawful activity or to conceal or disguise the nature, location, source, ownership, or control of the proceeds; and
• Conspiracy — 18 U.S.C. § 371, which prohibits conspiracy to commit an offense against the United States or to defraud the United States.
It is possible that additional statutory violations are under investigation, but these four statutes appear to represent the core of the government's theory based on the information currently available to us.
C. Government's Core Allegations
Based on the document specifications contained in the grand jury subpoena and the informal statements made by AUSA Goldfarb during the December 12, 2022 proffer call, we understand the government's core allegations to be as follows:
1. Inflated Appraisals. The government alleges that Stavros caused Pinnacle Appraisal Group LLC ("Pinnacle"), located at 355 Lexington Avenue, 9th Floor, New York, NY 10017, to issue inflated property valuations for properties acquired by Aegean Realty syndication vehicles. According to the government's theory, these inflated appraisals enabled Aegean Realty entities to secure larger commercial real estate loans from Westlake Fidelity Bank, N.A. ("Westlake Fidelity" or "the Bank"), headquartered at 600 Summer Street, Stamford, CT 06901, than the properties' actual values would have supported. Specifically, the inflated appraisals are alleged to have enabled Aegean entities to present falsely elevated loan-to-value ratios to Westlake Fidelity, thereby inducing the bank to extend credit it would not otherwise have approved. The precise number of properties affected by the alleged appraisal inflation has not been specified by the government, but the subpoena seeks documents related to all properties acquired by Aegean entities, suggesting the scope may be broad.
2. Diversion of Investor Capital. The government alleges that Stavros diverted approximately $18.7 million in investor capital from Aegean Realty Fund IV LP and Aegean Realty Fund V LP to personal accounts and to fund operating shortfalls in earlier fund vehicles — specifically, to cover obligations of Aegean Realty Fund I LP, Fund II LP, and Fund III LP that were experiencing negative cash flows. The government characterizes this pattern as a Ponzi-like structure, in which returns to earlier investors were funded not from genuine investment performance but from capital contributed by later investors. AUSA Goldfarb referenced this characterization during the proffer call, though she did not provide detailed specifics regarding the tracing of the allegedly diverted funds.
3. False Financial Statements. The government alleges that Stavros caused false financial statements to be submitted to Westlake Fidelity Bank, N.A. and to Harborview Trust Company ("Harborview Trust"), located at 88 Broad Street, Suite 200, Bridgeport, CT 06604, in connection with loan covenant compliance. The nature of the falsifications is not fully known to us at this time, but based on the subpoena specifications — which request documents related to financial reporting to lenders, covenant compliance certificates, and periodic financial statements — we infer that the alleged falsifications related to the financial condition of Aegean Realty entities and/or the underlying properties securing loans from these institutions.
4. Scale of Alleged Losses. The government estimates total investor losses of approximately $43 million across the various Aegean Realty fund vehicles. Estimated total lender losses are approximately $31 million. These loss estimates suggest a significant fraud, if proved, and one that will likely attract substantial prosecutorial resources and attention.
5. Scale of Aegean Operations. By way of background, Aegean Realty Partners raised approximately $215 million in aggregate capital across seven syndication offerings between 2016 and 2021. These offerings were structured as Delaware limited partnerships and were marketed to accredited investors. Westlake Fidelity Bank extended approximately $127 million in commercial real estate loans to various Aegean-affiliated entities between 2016 and 2020. Harborview Trust Company served as the escrow agent for investor deposits in Aegean Realty Fund IV LP and Aegean Realty Fund V LP and separately extended a $14.5 million mezzanine loan to at least one Aegean entity, the identity of which has not been confirmed.
6. Victim Institutions. The primary institutional victims in the investigation appear to be Westlake Fidelity Bank, N.A. and Harborview Trust Company. Westlake Fidelity Bank is represented in this matter by Graystone & Falk LLP, located at 100 Pearl Street, Suite 1600, Hartford, CT 06103, with lead partner Catherine A. Falk handling the engagement. We are not yet aware of the identity of counsel representing Harborview Trust. The interests of these institutions will be relevant to our assessment of potential civil claims against Caldwell, as discussed in Section V below.
III. Caldwell's Business Relationship with Stavros and Aegean Realty Entities
A. Introduction and Background
Jonathan R. Caldwell, age 58, is a New York-based real estate investor and asset manager with approximately three decades of experience in the commercial real estate sector. He is the sole member and managing principal of Caldwell Capital Advisors LLC ("CCA"), a New York limited liability company bearing Employer Identification Number 83-2174056. CCA manages approximately $340 million in real estate-focused investment assets across three fund vehicles and maintains its offices at 590 Madison Avenue, 22nd Floor, New York, NY 10022. CCA's investment strategy focuses principally on multifamily and mixed-use properties in the New York metropolitan area, with selective investments in industrial and logistics assets in the broader tristate region.
In addition to his activities through CCA, Caldwell is the sole owner of JRC Realty Holdings LLC ("JRC Realty"), a personal holding company bearing Employer Identification Number 81-4493217. JRC Realty holds Caldwell's direct real estate portfolio, which has an assessed value of approximately $78 million across 14 properties in the New York tristate area. JRC Realty is also registered at 590 Madison Avenue, 22nd Floor, New York, NY 10022.
Caldwell has no criminal history. He has never been the subject of any criminal investigation, and he has no history of regulatory enforcement actions by the Securities and Exchange Commission, the Financial Industry Regulatory Authority, or any state regulatory body.
Caldwell first met Stavros in approximately 2014 at the National Real Estate Investors Forum, an annual industry conference. Their business relationship developed from that initial meeting and evolved into a co-investment relationship that persisted from approximately 2015 through 2019. During this period, Caldwell made limited partnership investments in three Aegean Realty fund vehicles and participated as an equity co-investor in two direct joint ventures alongside Stavros. The co-investment period ended in late 2019 when Caldwell severed all business ties with Stavros following a dispute over management fees, as described in detail below in Section III.E. Since the separation in late 2019, Caldwell has had no business dealings with Stavros or any Aegean-affiliated entity.
B. Limited Partnership Investments in Aegean Realty Funds
During the co-investment period, Caldwell invested as a limited partner in three Aegean Realty fund vehicles, as follows:
1. Aegean Realty Fund III LP
Aegean Realty Fund III LP is a Delaware limited partnership. In June 2016, Caldwell invested $2,500,000 as a limited partner in Fund III. Caldwell's investment was made through a standard subscription agreement, and his status in the fund was that of a passive limited partner. He had no management authority over Fund III, no role in investment decisions made by the fund's general partner, and no involvement in the fund's day-to-day operations or reporting to other investors or lenders.
2. Aegean Realty Fund IV LP
Aegean Realty Fund IV LP is a Delaware limited partnership. In March 2017, Caldwell invested $4,000,000 as a limited partner in Fund IV. As with Fund III, Caldwell's investment was made through a standard subscription agreement, and his role was that of a passive limited partner without management authority or operational involvement. We note that Fund IV is one of the two fund vehicles from which the government alleges Stavros diverted approximately $18.7 million in investor capital, making Caldwell's investment in this fund a matter of particular analytical significance.
3. Aegean Realty Fund V LP
Aegean Realty Fund V LP is a Delaware limited partnership. In September 2018, Caldwell invested $3,500,000 as a limited partner in Fund V. Once again, Caldwell's role was that of a passive limited partner. Fund V is the second fund vehicle from which the government alleges investor capital was diverted, further heightening the relevance of Caldwell's investment in this vehicle.
4. Total LP Investments
Caldwell's total limited partnership investments across the three Aegean Realty funds are summarized as follows:
5. Distributions from LP Investments
Over the course of the co-investment period, Caldwell received aggregate distributions of approximately $1,870,000 from the three LP investments. These distributions were received through standard fund distribution channels and were characterized as returns on invested capital. The precise allocation of these distributions among the three fund vehicles is currently being reconstructed through our review of Caldwell's bank records and fund correspondence and will be detailed in the fund flow analysis being prepared by Daniel Obi. Preliminary review suggests that the bulk of the distributions were received from Fund III, which was the earliest-vintage fund and would have been expected to generate returns first.
C. Direct Co-Investment Joint Ventures
In addition to his LP investments, Caldwell participated as an equity co-investor alongside Stavros in two direct joint venture acquisitions, each structured as a separate limited liability company:
1. 710 Flatbush Holdings LLC
710 Flatbush Holdings LLC is a New York limited liability company formed as a 50/50 joint venture between Caldwell and Stavros. In April 2016, the entity acquired the property located at 710 Flatbush Avenue, Brooklyn, NY 11225 — a 42-unit mixed-use building — for a purchase price of $11,200,000. The acquisition was financed as follows:
• Total acquisition price: $11,200,000
• Westlake Fidelity Bank, N.A. senior loan: $5,600,000 (50% LTV at acquisition)
• Total equity required: $5,600,000
• Caldwell's equity contribution (50%): $2,800,000
• Stavros's equity contribution (50%): $2,800,000
The operating agreement for 710 Flatbush Holdings LLC designated Stavros as the managing member responsible for day-to-day property management, lender communications, and financial reporting. Caldwell's role was that of a passive equity investor. He was entitled to receive 50% of distributable cash flow and 50% of any capital event proceeds, but he was not involved in the management of the property or the lender relationship.
2. Stavros-Caldwell Industrial LLC
Stavros-Caldwell Industrial LLC is a New Jersey limited liability company formed as a joint venture between Stavros (60% interest) and Caldwell (40% interest). In October 2017, the entity acquired the property located at 1500 Commerce Boulevard, Newark, NJ 07114 — a 65,000 square foot industrial warehouse — for a purchase price of $8,900,000. The acquisition was financed as follows:
• Total acquisition price: $8,900,000
• Westlake Fidelity Bank, N.A. senior loan: $5,340,000 (60% LTV at acquisition)
• Total equity required: $3,560,000
• Caldwell's equity contribution (40%): $1,424,000
• Stavros's equity contribution (60%): $2,136,000
As with the Flatbush property, the operating agreement for Stavros-Caldwell Industrial LLC designated Stavros as the managing member with authority over property operations, lender communications, and financial reporting. Caldwell was a passive equity investor entitled to 40% of distributable cash flow and 40% of any capital event proceeds.
3. Total JV Equity
Caldwell's total equity contributions to the two joint venture entities are summarized as follows:
4. Distributions from JV Entities
Over the co-investment period, Caldwell received aggregate distributions of approximately $635,000 from the two joint venture entities. These distributions represented Caldwell's share of distributable cash flow generated by the underlying properties. The allocation between the two JV entities and the timing of individual distributions are being reconstructed through our document review and will be included in the fund flow analysis.
D. Total Distributions
Caldwell's total distributions from all Aegean-related investments are summarized as follows:
These distributions are a focal point of our analysis. As discussed in Sections IV.D and VI.A below, the government's allegation that Stavros diverted $18.7 million from Funds IV and V raises the question whether any portion of the distributions Caldwell received was sourced from diverted investor capital. Regardless of the source, the total amount received — $2,505,000 — is modest relative to Caldwell's total capital commitment of $14,224,000 and is consistent with the kinds of interim distributions a passive investor in a real estate fund or joint venture would ordinarily receive.
E. Separation and Buyout (2019–2020)
In October 2019, a dispute arose between Caldwell and Stavros over approximately $340,000 in management fees that Stavros had unilaterally charged to the operating account of 710 Flatbush Holdings LLC. Caldwell learned of the charges during a routine review of the JV's quarterly financial statements and immediately confronted Stavros about the charges, which Caldwell considered unauthorized under the terms of the operating agreement.
The management fee dispute prompted Caldwell to retain the firm of Whitmore & Kessler LLP, located at 277 Park Avenue, 40th Floor, New York, NY 10172, with lead attorney Patricia Sheldon handling the engagement. Whitmore & Kessler LLP was engaged to negotiate a comprehensive separation of Caldwell from all business arrangements with Stavros and Aegean-affiliated entities.
A separation agreement was negotiated and became effective on December 15, 2019. The agreement was drafted by Whitmore & Kessler LLP and provided for the following:
• 710 Flatbush Holdings LLC: Stavros purchased Caldwell's 50% membership interest for $3,400,000. The purchase price reflected an agreed-upon valuation of the underlying property and the JV entity's equity, net of the outstanding Westlake Fidelity Bank loan and the disputed management fees.
• Stavros-Caldwell Industrial LLC: Stavros purchased Caldwell's 40% membership interest for $1,850,000. The purchase price reflected an agreed-upon valuation of the underlying property and the JV entity's equity, net of the outstanding Westlake Fidelity Bank loan.
• Aegean Realty Fund III LP and Aegean Realty Fund IV LP: Caldwell's limited partnership interests in Fund III and Fund IV were redeemed contemporaneously with the execution of the separation agreement in December 2019. The exact redemption amounts for these two interests are currently being confirmed through our review of Caldwell's financial records and correspondence with the fund administrator.
• Aegean Realty Fund V LP: Caldwell submitted a redemption notice for his limited partnership interest in Fund V in connection with the separation. Due to a six-month redemption notice period applicable under the Fund V limited partnership agreement, the redemption was not completed until March 2020. The redemption price was $3,150,000.
The separation agreement included mutual releases of claims between Caldwell and Stavros with respect to their business relationship, subject to customary carve-outs for fraud and intentional misconduct. Following the completion of all buyout and redemption transactions, Caldwell had no remaining financial interest in any Aegean-affiliated entity and no continuing business relationship with Stavros.
F. Summary of Caldwell's Total Financial Exposure to Aegean-Related Investments
The following table summarizes Caldwell's total capital deployed in and recovered from Aegean-related investments:
The net financial outcome of Caldwell's Aegean-related investments will be finalized once the Fund III and Fund IV redemption amounts are confirmed. However, it is apparent from the preliminary figures that Caldwell's aggregate recoveries — inclusive of distributions, buyout proceeds, and redemption proceeds — are unlikely to have generated returns materially in excess of his total capital commitment, particularly when adjusted for the multi-year holding period and the opportunity cost of capital. This financial profile is consistent with Caldwell's characterization as a bona fide investor rather than a knowing participant in any fraudulent scheme.
IV. Analysis of Potential Criminal Exposure
A. Analytical Framework
The criminal statutes believed to be at issue in the Stavros/Aegean Realty investigation — wire fraud, bank fraud, money laundering, and conspiracy — are each specific intent crimes. That is, a conviction under any of these statutes requires proof that the defendant acted with the requisite mental state: typically, knowledge, willfulness, or specific intent to defraud. Mere association with a person who is engaged in criminal conduct, or mere participation in transactions that are later determined to involve the proceeds of criminal activity, is insufficient to establish criminal liability absent proof that the defendant knew of and intentionally participated in the unlawful scheme.
This distinction is critically important in the context of financial fraud cases involving investment structures with multiple participants. Courts have consistently recognized that passive investors who are deceived by a fraudulent scheme operator are victims, not co-conspirators, even if they received distributions that are later determined to have been funded by diverted capital. See, e.g., United States v. Madoff, No. 09-CR-213 (S.D.N.Y.) (investors in Ponzi scheme treated as victims); Picard v. Fairfield Greenwich Ltd., No. 09-01239 (Bankr. S.D.N.Y.) (clawback actions distinguished from criminal liability). The question for our analysis, therefore, is whether the factual record contains any evidence suggesting that Caldwell had knowledge of Stavros's alleged misconduct and intentionally participated in it. As discussed below, we conclude that it does not.
We note, as a threshold matter, that the government has informally confirmed — through AUSA Goldfarb's statements during the December 12, 2022 proffer call — that Caldwell is presently regarded as a witness rather than a target or subject of the investigation. This characterization is encouraging and is consistent with our own assessment of the factual record. However, we emphasize that witness status is an informal designation that provides no legal protection and can change at any time. The United States Attorneys' Manual provides guidance regarding the classification of individuals as targets, subjects, or witnesses, but the government is under no obligation to provide advance notice of a change in classification. Accordingly, we analyze each potential theory of criminal liability without reliance on the government's current characterization and instead focus on the substantive evidence.
B. Wire Fraud (18 U.S.C. § 1343)
Elements. A conviction for wire fraud under 18 U.S.C. § 1343 requires proof beyond a reasonable doubt of three elements: (1) the defendant's knowing and willful participation in a scheme or artifice to defraud, or to obtain money or property by means of false or fraudulent pretenses, representations, or promises; (2) the defendant's specific intent to defraud; and (3) the use of interstate wire communications in furtherance of the scheme. See United States v. Autuori, 212 F.3d 105, 115 (2d Cir. 2000); United States v. Weimert, 819 F.3d 351, 355 (7th Cir. 2016). In the Second Circuit, the government must prove that the defendant had a "consciousness of wrongdoing" — that is, that the defendant knew the scheme was fraudulent and participated in it with the intent to deceive. United States v. Finazzo, 850 F.3d 94, 109 (2d Cir. 2017).
Analysis. Our review of the factual record — including the client interview, the approximately 14,200 documents collected to date, and the information available from the subpoena and the proffer call — reveals no evidence that Caldwell participated in designing, executing, or furthering any scheme to defraud investors or lenders. To the contrary, the record is consistent with Caldwell being an investor who was himself deceived by Stavros.
Caldwell committed a total of $10,000,000 in LP capital and $4,224,000 in JV equity to Aegean-related investments — a total of $14,224,000 of his own money. This level of capital commitment is wholly inconsistent with the profile of a knowing participant in a fraud. A co-conspirator would have no reason to invest his own substantial capital in a scheme he knew to be fraudulent, as doing so would expose his own funds to the very risks the scheme created.
Moreover, Caldwell's exit from the business relationship in 2019 — which was prompted by the management fee dispute and resulted in a negotiated separation — further negates any inference of ongoing participation in a scheme. Caldwell's decision to retain independent counsel (Whitmore & Kessler LLP) and to negotiate an arm's-length buyout of his interests reflects the conduct of a dissatisfied investor seeking to protect his own financial interests, not the conduct of a co-conspirator seeking to advance a fraudulent enterprise.
We have identified no communications in the documents reviewed to date in which Caldwell discusses, references, acknowledges, or demonstrates awareness of any of the core elements of the government's allegations — inflated appraisals, diversion of investor capital, or submission of false financial statements to lenders. Subject to the sensitivity analysis in Section VI.B regarding Caldwell's potential knowledge of Pinnacle appraisals, the record is devoid of evidence suggesting that Caldwell had knowledge of any fraudulent activity.
Conclusion. Based on the current factual record, we do not believe Caldwell has wire fraud exposure. There is no evidence that he knowingly participated in or furthered any scheme to defraud.
C. Bank Fraud (18 U.S.C. § 1344)
Elements. A conviction for bank fraud under 18 U.S.C. § 1344 requires proof beyond a reasonable doubt that the defendant knowingly executed or attempted to execute a scheme or artifice to defraud a financial institution, or to obtain money, funds, credits, assets, securities, or other property owned by or under the custody or control of a financial institution, by means of false or fraudulent pretenses, representations, or promises. See Loughrin v. United States, 573 U.S. 351 (2014); United States v. Nkansah, 699 F.3d 743, 749 (2d Cir. 2012). The statute requires that the defendant act "knowingly" — that is, with an awareness that false or misleading information was being submitted to a financial institution for the purpose of obtaining funds.
Analysis. The bank fraud analysis is particularly relevant because the two JV entities in which Caldwell held interests — 710 Flatbush Holdings LLC and Stavros-Caldwell Industrial LLC — each obtained financing from Westlake Fidelity Bank. The Flatbush property was financed with a $5,600,000 senior loan, and the Commerce Boulevard property was financed with a $5,340,000 senior loan. Thus, Caldwell was a co-owner of entities that borrowed approximately $10,940,000 in aggregate from Westlake Fidelity Bank.
The critical question is whether Caldwell participated in, facilitated, or had knowledge of any false statements, inflated appraisals, or misleading financial information submitted to Westlake Fidelity Bank in connection with these loans. Based on the record as currently developed, we do not believe he did. Caldwell's role in the JV entities was that of a passive equity investor. The operating agreements for both 710 Flatbush Holdings LLC and Stavros-Caldwell Industrial LLC designated Stavros as the managing member with authority over all lender communications, financial reporting, and property management. Caldwell was not a party to the loan agreements with Westlake Fidelity Bank, did not sign personal guarantees on the loans, and — based on his interview statements — did not participate in the preparation or submission of any financial information to the bank.
We note, however, that Pinnacle Appraisal Group LLC provided appraisals for several Aegean Realty acquisitions and that inflated valuations are a central focus of the government's investigation. It is therefore important to determine whether Caldwell received, reviewed, or relied upon any Pinnacle appraisals in connection with the Flatbush or Commerce acquisitions, or in connection with his LP investments. If Caldwell — a sophisticated real estate investor managing approximately $340 million in assets — saw appraisals that were facially unreasonable, a question could arise as to whether he should have recognized the inflation and taken action. This issue is discussed further in the sensitivity analysis in Section VI.B below.
Caldwell's interview statements indicate that he relied on Stavros to manage lender relationships and did not personally review appraisals submitted to Westlake Fidelity Bank for the JV properties. We have not yet completed our review of the 14,200 documents collected from Caldwell's custodial sources, and it is possible that communications will be identified that bear on this issue. Completion of the document review is therefore a priority.
Conclusion. Based on the current factual record, we do not believe Caldwell has bank fraud exposure. There is no evidence that he knowingly participated in or facilitated the submission of false statements or inflated appraisals to Westlake Fidelity Bank or any other financial institution. This conclusion is subject to further investigation of Caldwell's knowledge regarding appraisals, as discussed in Section VI.B.
D. Money Laundering (18 U.S.C. § 1956)
Elements. A conviction for money laundering under 18 U.S.C. § 1956(a)(1) requires proof beyond a reasonable doubt that the defendant: (1) conducted or attempted to conduct a financial transaction; (2) which involved the proceeds of specified unlawful activity; (3) knowing that the property involved in the financial transaction represents the proceeds of some form of unlawful activity; and (4) with either (a) the intent to promote the carrying on of specified unlawful activity, or (b) knowledge that the transaction was designed in whole or in part to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity. See United States v. Santos, 553 U.S. 507 (2008); United States v. Piervinanzi, 23 F.3d 670, 680 (2d Cir. 1994).
The knowledge requirement is central to our analysis. Money laundering is not a strict liability offense. The government must prove that the defendant knew the funds involved in the transaction were derived from criminal activity. Mere receipt of funds that happen to be derived from unlawful activity is insufficient to establish a violation absent proof of the defendant's knowledge. See United States v. Campbell, 977 F.2d 854, 857 (4th Cir. 1992).
Analysis. Caldwell received aggregate distributions of $2,505,000 from entities now suspected of being vehicles for Stavros's alleged fraud — $1,870,000 from LP investments in Funds III, IV, and V, and $635,000 from the two JV entities. If any portion of those distributions was sourced from diverted investor capital — and the government alleges that $18.7 million was diverted from Funds IV and V — then Caldwell's receipt of those funds could, in theory, constitute the "conducting of a financial transaction" involving "proceeds of specified unlawful activity."
However, the money laundering statute requires more than mere receipt of tainted funds. The government would need to prove that Caldwell knew the distributions he received represented the proceeds of unlawful activity. There is no evidence in the record — from the client interview, from the documents reviewed to date, or from any other source — that Caldwell knew or had reason to know that the distributions he received were sourced from diverted investor capital rather than from legitimate investment returns. Caldwell received these distributions through normal fund distribution channels, in amounts that were not facially inconsistent with expected returns on his invested capital. He had no visibility into the internal fund accounting or the sources from which distributions were funded. As a passive limited partner, he had no right or ability to audit the funds' internal accounts.
Similarly, the buyout proceeds Caldwell received in connection with the 2019 separation — $3,400,000 for his interest in 710 Flatbush Holdings LLC, $1,850,000 for his interest in Stavros-Caldwell Industrial LLC, and $3,150,000 for his Fund V LP redemption — were paid as negotiated consideration for Caldwell's ownership interests in an arm's-length transaction. These payments were the product of a separation negotiated with the assistance of independent counsel (Whitmore & Kessler LLP) and were documented in a formal separation agreement. There is no evidence that these payments were structured to conceal the nature, source, or ownership of illicit proceeds, or that Caldwell had any knowledge that the source of the buyout funds was tainted.
We note that the government's forensic accountant, Meridian Forensic Advisors LLC, is conducting a comprehensive fund flow analysis through the Aegean entities. It is likely that this analysis will trace distributions to all investors, including Caldwell, and will seek to determine whether any distributions were funded by diverted capital. If the analysis reveals that distributions paid to Caldwell were indeed sourced from diverted funds, the question of Caldwell's knowledge will become more pressing. However, even if the tracing exercise demonstrates a tainted source, the absence of evidence of Caldwell's knowledge should be dispositive.
Conclusion. Based on the current factual record, we do not believe Caldwell has money laundering exposure. There is no evidence that he knew or had reason to know that the distributions he received represented proceeds of unlawful activity. However, this is an area of factual sensitivity that warrants continued monitoring, as discussed in Section VI.A below.
E. Conspiracy (18 U.S.C. § 371)
Elements. A conviction for conspiracy under 18 U.S.C. § 371 requires proof beyond a reasonable doubt of three elements: (1) an agreement between two or more persons to commit an offense against the United States or to defraud the United States; (2) the defendant's knowing and voluntary participation in the conspiracy; and (3) the commission of at least one overt act in furtherance of the conspiracy by any member of the conspiracy. See United States v. Ogando, 547 F.3d 102, 107 (2d Cir. 2008). The essential element of a conspiracy charge is the agreement — the meeting of minds between the defendant and one or more other persons to accomplish an unlawful objective. See United States v. Falcone, 311 U.S. 205, 210 (1940). Mere knowledge that another person is engaged in criminal conduct, or even association with a person engaged in criminal conduct, is insufficient to establish conspiracy liability. See United States v. Torres, 604 F.3d 58, 65 (2d Cir. 2010).
Analysis. There is no evidence in the factual record of any agreement between Caldwell and Stavros to defraud investors, lenders, or the United States. The relationship between Caldwell and Stavros was a standard co-investor arrangement in which Caldwell contributed capital and Stavros managed the investments. The record reflects no communications or conduct suggesting that Caldwell and Stavros had a shared objective of defrauding anyone.
To the contrary, Caldwell's exit from the relationship in 2019 was adversarial in nature. The management fee dispute — in which Caldwell accused Stavros of unilaterally and improperly charging $340,000 in fees to the 710 Flatbush Holdings LLC operating account — reflects a relationship that was contentious, not conspiratorial. Caldwell's immediate response to the perceived impropriety was to retain independent counsel (Whitmore & Kessler LLP) and to negotiate a complete severance of all business ties. This is the antithesis of conspiratorial conduct. A co-conspirator would have no reason to sever a profitable relationship over a relatively modest fee dispute, and the adversarial posture of the separation negotiations further underscores the absence of any meeting of minds between Caldwell and Stavros regarding the alleged fraudulent scheme.
Furthermore, the separation occurred in late 2019 — prior to the commencement of the government's investigation in early 2022. Caldwell's decision to exit the relationship was therefore not motivated by awareness of a government investigation or a desire to distance himself from criminal conduct; it was motivated by a genuine business dispute.
Conclusion. No conspiracy exposure has been identified based on the current factual record. The evidence affirmatively negates any inference of a conspiratorial relationship between Caldwell and Stavros.
F. Overall Criminal Exposure Assessment
Based on the current factual record, as developed through the client interview, our review of the collected documents, and the information available from the subpoena and the proffer call with AUSA Goldfarb, we do not believe that Jonathan R. Caldwell has criminal exposure in connection with the Stavros/Aegean Realty investigation.
The record is consistent with Caldwell being a passive co-investor who committed $14,224,000 of his own capital to Aegean-related investments and who was unaware of Stavros's alleged misconduct. Caldwell's independent separation from Stavros in 2019 — prior to the commencement of the investigation — supports the conclusion that he was not a participant in any fraudulent scheme. The absence of evidence of knowledge, intent, or agreement to participate in unlawful conduct means that no theory of criminal liability — wire fraud, bank fraud, money laundering, or conspiracy — is supported by the current record.
We emphasize that this assessment is based on the information currently available and is subject to revision as additional facts are developed. The areas of factual sensitivity identified in Section VI below should be carefully monitored.
V. Analysis of Potential Civil Exposure
A. Potential Clawback or Disgorgement Actions
If the government's investigation results in criminal charges against Stavros and the eventual appointment of a receiver, trustee, or liquidator for the Aegean Realty entities — or if the Aegean entities file for bankruptcy protection — there is a possibility that a fiduciary representing the interests of defrauded investors or creditors could pursue clawback or disgorgement actions against persons who received distributions from the entities during the relevant period.
Caldwell received total distributions of $2,505,000 from Aegean-related entities over the co-investment period. Under fraudulent transfer theories — whether asserted under the New York Debtor and Creditor Law (Article 10) or, in the event of bankruptcy proceedings, under 11 U.S.C. §§ 548 and 550 — a trustee or receiver could theoretically seek to recover distributions paid to investors if those distributions were made with intent to defraud creditors (actual fraud) or if the distributing entity was insolvent at the time of the transfer and did not receive reasonably equivalent value in exchange (constructive fraud).
However, several factors militate against the success of any such clawback action against Caldwell. First, Caldwell received the distributions as an arm's-length investor in good faith. He invested $14,224,000 in capital and received only $2,505,000 in distributions — an amount well below his total capital commitment. A fraudulent transfer claim is difficult to sustain where the transferee received distributions in the ordinary course of business, in good faith, and for reasonably equivalent value. Under the Bankruptcy Code, 11 U.S.C. § 548(c) provides a defense for transferees who took the transferred property in good faith and for value. Similarly, New York courts have recognized that ordinary-course investment returns paid to good faith investors may be insulated from clawback. See Picard v. Greiff, 476 B.R. 715 (S.D.N.Y. 2012) (discussing good faith defense in the context of Madoff-related clawback actions).
Second, the total amount of distributions received by Caldwell ($2,505,000) is relatively modest in comparison to the scale of the alleged fraud ($43 million in investor losses, $31 million in lender losses). While this does not provide a legal defense, it suggests that a fiduciary charged with maximizing recoveries for victims would be more likely to focus enforcement efforts on larger recovery targets — such as Stavros himself, his personal accounts, and any entities or individuals that received more substantial transfers of diverted capital.
Notwithstanding these considerations, the risk of a clawback action cannot be dismissed entirely. If the government's forensic analysis traces specific distributions received by Caldwell to diverted investor capital, the factual predicate for a fraudulent transfer claim would be strengthened, even though Caldwell's good faith defense would remain available. We recommend that Caldwell maintain awareness of any civil proceedings, receivership petitions, or bankruptcy filings involving Aegean Realty entities and be prepared to assert his defenses if a clawback action is initiated.
We also note that Caldwell's buyout and redemption proceeds — $3,400,000 (Flatbush), $1,850,000 (Newark), and $3,150,000 (Fund V) — could theoretically be subject to fraudulent transfer scrutiny, particularly the Fund V redemption that occurred in March 2020, during a period when the fund may have been insolvent. The arm's-length nature of the negotiated separation and the involvement of independent counsel (Whitmore & Kessler LLP) on both sides would support a good faith defense, but this is another area warranting monitoring.
B. Potential Lender Claims
Westlake Fidelity Bank, N.A. — through its counsel Graystone & Falk LLP (lead partner Catherine A. Falk) — could theoretically assert claims against co-owners of properties financed by the bank if those co-owners participated in or facilitated the alleged misrepresentations that induced the bank to extend credit. In Caldwell's case, he was a co-owner of two entities — 710 Flatbush Holdings LLC and Stavros-Caldwell Industrial LLC — that borrowed an aggregate of approximately $10,940,000 from Westlake Fidelity Bank.
However, for the bank to prevail on a fraud-based claim against Caldwell, it would need to establish that Caldwell personally made, authorized, or ratified false statements or misrepresentations to the bank. Based on the current record, there is no evidence that Caldwell had any direct communication with Westlake Fidelity Bank, that he participated in loan applications or financial reporting to the bank, or that he authorized or was aware of any false statements submitted to the bank. His role in the JV entities was that of a passive equity investor, and all lender communications were handled by Stavros as the managing member.
It is possible that Westlake Fidelity Bank could pursue broader theories of liability, such as aiding and abetting fraud or negligent misrepresentation. However, such claims would face significant evidentiary hurdles given the absence of any evidence of Caldwell's participation in or knowledge of the alleged misrepresentations. We assess the likelihood of a successful lender claim against Caldwell as low.
Additionally, we note that Caldwell is no longer a co-owner of either the Flatbush or Commerce properties, having sold his interests to Stavros as part of the December 2019 separation. Any claims related to the ongoing management of these properties or post-2019 loan covenant compliance would not involve Caldwell.
C. Potential Investor Claims
Other investors in the Aegean Realty fund vehicles could theoretically assert claims against co-investors, but such claims would be unusual and difficult to sustain. Caldwell was himself a limited partner with no management authority over the funds. He had no role in soliciting investors, managing fund assets, making investment decisions, or preparing financial reports or offering materials. His limited partnership agreements — like those of all other LP investors — conferred upon him no operational authority and imposed no obligations to other investors.
As an LP investor who committed $10,000,000 to three Aegean funds and received only $1,870,000 in distributions (before redemption), Caldwell suffered investment losses that place him in the same position as other defrauded investors. He is more naturally situated as a potential plaintiff in any investor class action than as a defendant. We do not assess any material risk of investor claims against Caldwell.
D. Overall Civil Exposure Assessment
Caldwell's civil exposure is assessed as low. The primary area of concern is the potential for clawback of the $2,505,000 in distributions received from Aegean-related entities, particularly if the government's forensic analysis traces any portion of those distributions to diverted investor capital. Caldwell has strong defenses — including good faith, the arm's-length nature of his investments, and the fact that his distributions were modest relative to his capital commitment — but the risk cannot be entirely eliminated.
The risk of lender claims is assessed as low, and the risk of investor claims is assessed as minimal. We recommend monitoring any civil proceedings, receivership, or bankruptcy filings involving Aegean Realty entities and being prepared to respond promptly if Caldwell is named in any such proceedings.
VI. Areas of Factual Sensitivity
While the overall criminal and civil exposure analysis is favorable to Caldwell, we have identified three areas of factual sensitivity that warrant further investigation, monitoring, and careful management as the investigation proceeds:
A. Receipt of Distributions Potentially Sourced from Diverted Funds
As discussed in Sections IV.D and V.A above, Caldwell received total distributions of approximately $2,505,000 from Aegean-related entities — $1,870,000 from LP investments in Funds III, IV, and V, and $635,000 from the two JV entities.
The government alleges that Stavros diverted approximately $18.7 million from Funds IV and V to personal accounts and to fund operating shortfalls in earlier fund vehicles. Given that Caldwell was an investor in both Fund IV (to which he committed $4,000,000) and Fund V (to which he committed $3,500,000), it is possible — indeed, probable — that a portion of the distributions Caldwell received from these funds was sourced from diverted investor capital.
Although receipt of diverted funds without knowledge does not itself constitute a crime, this fact pattern may draw government scrutiny. The government's forensic accountant, Meridian Forensic Advisors LLC (Nathan P. Solis, Managing Director), is conducting a comprehensive tracing of fund flows through Aegean entities. It is virtually certain that distributions to all investors — including Caldwell — will be analyzed as part of this exercise. If the government's analysis reveals that specific distributions to Caldwell were funded by diverted capital, the government may wish to explore whether Caldwell had any knowledge of the source of those funds.
In anticipation of this analysis, we have directed Daniel Obi to prepare a comprehensive fund flow analysis that cross-references Caldwell's bank records with the timing and amounts of distributions received from each Aegean entity. This internal analysis will serve two purposes: (1) it will allow us to develop a complete factual picture of the capital flows between Caldwell and the Aegean entities before the government completes its own analysis, enabling us to anticipate any questions or concerns; and (2) it will allow us to identify any transactions that may require explanation or contextualization.
A critical defensive fact in this regard is that Caldwell's bank records do not reflect any direct transfers to or from Stavros's personal accounts. All fund flows between Caldwell and the Aegean entities were conducted through proper entity accounts — the fund vehicles' bank accounts for LP investments and the JV entities' bank accounts for JV distributions. There are no wire transfers, checks, or other payments between Caldwell and Stavros individually. This fact supports Caldwell's characterization as a passive investor who transacted with the entities in the ordinary course and had no involvement in or knowledge of any movement of funds outside of proper channels.
B. Potential Knowledge of Inflated Appraisals from Pinnacle Appraisal Group
The government's investigation includes a focus on appraisals provided by Pinnacle Appraisal Group LLC for properties acquired by Aegean Realty entities. The government alleges that these appraisals were inflated to enable Aegean entities to secure larger loans from Westlake Fidelity Bank than the properties' actual values would have supported.
An important question for Caldwell's defense is whether he received or reviewed any Pinnacle appraisals in connection with the Flatbush or Commerce acquisitions (in which he was a co-investor) or in connection with his LP investments in Funds III, IV, and V. If Caldwell received appraisals that contained valuations that were facially unreasonable given his extensive experience in the New York real estate market — and his status as a sophisticated investor managing approximately $340 million in assets — a question could arise as to whether he should have recognized the inflation and raised concerns. The government could argue that a real estate professional of Caldwell's experience and sophistication should have been able to identify an inflated appraisal, and that his failure to do so suggests either willful blindness or complicity.
During the client interview on November 28, 2022, Caldwell stated that he relied on Stavros to manage all lender relationships for the JV properties and that he did not personally review appraisals submitted to Westlake Fidelity Bank. With respect to his LP investments, Caldwell stated that he relied on the fund offering materials and Stavros's representations regarding property valuations and fund performance, and that he did not conduct independent due diligence on the appraisals underlying individual fund acquisitions. These statements, if corroborated by the documentary record, support the conclusion that Caldwell did not have actual knowledge of the inflated appraisals.
However, we must be cautious. The government may argue that Caldwell's failure to review appraisals — given his sophistication and the magnitude of his capital commitments — constitutes willful blindness to obvious red flags. The willful blindness doctrine, as applied in the Second Circuit, permits a finding of knowledge where the defendant "was aware of a high probability of the fact in dispute and consciously avoided confirming that fact." See United States v. Ferrarini, 219 F.3d 145, 154 (2d Cir. 2000); Global-Tech Appliances, Inc. v. SEB S.A., 563 U.S. 754 (2011). If the appraisals were so facially inflated that any experienced real estate professional would have recognized them as unreasonable, and if Caldwell received or had access to those appraisals, the government could argue that his failure to question them was not innocent ignorance but deliberate avoidance of knowledge.
We recommend a careful review of the produced documents for any communications between Caldwell and Stavros, or between Caldwell and Pinnacle Appraisal Group LLC, that reference appraisals, property valuations, or loan-to-value ratios. We should also review any communications in which Caldwell discusses the acquisition prices, expected returns, or financial performance of the properties, as these may bear on his understanding of property values and his ability to recognize inflated appraisals. The results of this review will be critical in refining our assessment of this area of sensitivity.
C. The Disputed $340,000 Management Fee Charge
As discussed in Section III.E above, the separation between Caldwell and Stavros was precipitated by a dispute over approximately $340,000 in management fees that Stavros unilaterally charged to the 710 Flatbush Holdings LLC operating account in or around October 2019. Caldwell discovered the charges during a routine review of the JV's quarterly financial statements and immediately confronted Stavros, leading to the breakdown of the business relationship and the negotiation of the separation agreement.
While the management fee dispute is, in the main, a favorable fact for Caldwell — it demonstrates that he was vigilant about his financial interests and took prompt action upon discovering what he perceived to be an impropriety — it also presents a subtle area of factual sensitivity. Specifically, the government may view the fee dispute as evidence that Caldwell observed financial irregularities in the JV operations, even if limited in scope to the misallocation of management fees. The government could argue that if Caldwell was astute enough to notice and object to a $340,000 unauthorized fee charge, he should have been suspicious of broader financial irregularities within the Aegean Realty enterprise, particularly given his simultaneous exposure to three Aegean fund vehicles.
This line of reasoning would be speculative, and we believe it can be effectively rebutted. The management fee dispute involved a specific, identifiable charge to a specific operating account — a charge that Caldwell discovered through a routine quarterly review. There is a meaningful difference between noticing a discrete fee charge on a JV operating statement and detecting a complex, multi-fund scheme involving inflated appraisals, diverted investor capital, and false financial statements to lenders. The former requires ordinary attention to financial statements; the latter would require access to fund-level accounting records, knowledge of lender relationships, and awareness of inter-fund capital movements — none of which Caldwell had as a passive limited partner or passive JV equity investor.
Moreover, Caldwell's response to the fee dispute is precisely the conduct of someone who, upon discovering a problem, acted to protect himself rather than to cover it up or perpetuate a broader scheme. He immediately retained independent counsel and negotiated a complete exit from all business arrangements with Stavros. This response is powerful evidence of innocence, not complicity. A co-conspirator who discovered a problem within a fraudulent enterprise would be unlikely to retain outside lawyers, demand a buyout, and sever all ties.
Nonetheless, we should be prepared for the government to explore this line