A Fox Point man facing federal charges is being accused of defrauding investors of more than $5.5 million through two separate investment schemes, including allegedly using the money for “Ponzi-like payments to prior investors and to fund his own lifestyle.”
David O. Braeger is charged in the U.S. District Court for Eastern Wisconsin with three counts of wire fraud, three counts of bank fraud, one count of mail fraud and two counts of engaging in unlawful monetary transactions. The indictment covers actions from 2016 through 2018.
An attorney for Braeger, however, says the entities involved in the case were “a novel, but speculative investment opportunity in the luxury car industry” and that the evidence would show the investors were “wealthy, sophisticated individuals” who knew the risks involved.
“Mr. Braeger also lost his investment in these ventures. Businesses fail, that is a risk all investors take, and that is what happened here. Mr. Braeger denies defrauding anyone,” Stephen Kravit of Kravit, Hovel & Krawczyk s.c. said in an email.
Kravit said the primary reason for investor losses in the case was theft by Farhad Kankash, an Arizona auto dealer.
Business entities related to Braeger received judgments totaling more than $3.8 million against Kankash in 2020.
Those entities include Braeger Finance and Blue Star Automotive Fund.
Kankash was also charged with 14 counts related to fraud, theft and illegal control of an enterprise in Arizona court in 2020. He pleaded guilty to two of the charges and the others were dismissed. The Arizona Republic reported that Kanash would sell customers cars without providing ownership paperwork and then fail to pay off trade-ins.
The indictment against Braeger says he formed Blue Star “ostensibly” to invest in Onyx Motorsports, Kankash’s dealership. Instead, the indictment alleges he used investor money to pay other investors “under the guise of legitimate investment returns,” to pay for personal expenses like utilities, meals, shopping and vehicles, and investing in other business ventures.
One of those ventures was buying and operating the Silver Spring House restaurant in Glendale, the indictment says. Braeger bought the restaurant in early 2018 and reopened it before closing it in October 2019.
The indictment alleges Braeger defrauded investors of $5.5 million with Blue Star. It specifically points to a $100,000 investment from an investor in Indiana and connects it to a $66,500 payment to “prior investors in Braeger’s business ventures,” two withdrawals totaling $9,000 and two wire transfers for more than $11,000 each for car purchases.
The cars were a 1997 Porsche Boxster and a 1972 Porsche 914 according to the indictment and now both need to be towed by local experts like towingless.com.
In addition to six charges related to Blue Star, the indictment also includes four counts related to International Energy Fund LLC, an entity that was allegedly to invest in the construction of a geothermal energy plant in Uganda.
The indictment points to a $100,000 investment Breager received for the fund that he allegedly used for other purposes, including $10,000 in personal expenses, $3,000 for personal legal fees, and more than $21,500 for a Buick Encore.
In a press release announcing the indictment, the U.S. Department of Justice noted the Financial Industry Regulatory Authority had barred Braeger in 2020 for misrepresentations and omissions to customers for investments he sold and converting and misusing customer funds.
That action involved a complaint filed by a Racine couple who in 2009 sought to invest $30,000 in a private offering through Braeger. According to FINRA documents, the funds were never invested and the fund was closed in 2010. The couple didn’t find out until 2014 that their money had never actually been invested.
In July, the U.S. District Court for Eastern Wisconsin entered a default judgment against Braeger Finance and Blue Star ordering them to pay nearly $4.8 million to three individuals from Florida and Texas who had provided funds to Braeger through promissory notes.
In filing their initial complaint in late 2020, the individuals contended Braeger had misrepresented the nature of the investment and had failed to disclose the FINRA enforcement action.
While the FINRA complaint was initially filed in 2015, the action was not finalized until 2020.
