Disgraced Nightingale CEO Elie Schwartz Begs For Leniency After $63M CrowdStreet Fraud
The disgraced CEO of Nightingale Properties says he “learned a valuable lesson” about how he shouldn't be trusted with other people's money after admitting to a $63M fraud scheme.
Elchonon “Elie” Schwartz is hoping to avoid jail time after pleading guilty to one count of wire fraud in February, which carries a maximum 20-year sentence. Federal prosecutors are seeking a prison term less than half that length.
Schwartz raised $63M via CrowdStreet in 2022 to fund the planned acquisition of the Atlanta Financial Center office complex and a recapitalization of a Miami Beach office building he already owned. He never closed on those deals and instead drained roughly $54M from their accounts to spend on personal expenses, luxury watches, soon-to-fail bank stocks and other Nightingale deals.
In advance of his sentencing hearing Monday, Schwartz wrote a letter to District Judge Steven Grimberg of the Northern District of Georgia as part of a sentencing memorandum submitted Thursday by his attorney, public defender Colin Garrett. In the letter, which was filed under seal but excerpted in Garrett's memo, Schwartz said he has pivoted from owning properties to consulting on real estate deals.
“By working for others, I am making sure not to put myself in a position to hold other people’s money. I learned a valuable lesson about my vulnerability in controlling money under extreme circumstances, and now I am ensuring that no matter how much pressure I am under, I won’t have access to any funds,” Schwartz wrote. “In a way, I am protecting myself from myself.”
Federal prosecutors, in their own sentencing memo, recommended that Schwartz serve the low end of a 78- to 97-month sentence based on sentencing guidelines, his cooperation with investigators and his lack of prior criminal history.
Department of Justice attorneys wrote that Schwartz's abuse of a position of trust, his hundreds of victims and the staggering amount of money he misappropriated necessitate a “significant need for a meaningful term of imprisonment.”
But they added that the more than 800 victims, who invested at least $25K each in his deals via real estate crowdfunding platform CrowdStreet, didn't “suffer significant financial hardship” as a result, since all of them were accredited investors and acknowledged in the subscription agreements that they had the means to weather a total loss.
The letter was signed by U.S. Attorney Theodore Hertzberg, Assistant U.S. Attorney Kelly Conners, DOJ acting Fraud Division Chief Lorinda Laryea and DOJ trial attorney Matthew Sullivan.
They acknowledged that 15 victims submitted statements claiming they experienced significant hardship because of losses to their retirement funds, needing to take out student loans for their children, or being forced to downsize their homes. But they said some of those victims suffered those hardships because of other factors.
Because Schwartz's victims signed documents attesting that they were accredited investors — meaning they had a net worth of $1M or annual income over $200K at the time — they agreed that they “could bear the economic risk of a potential loss of their investments, and understood the illiquidity of the investments,“ prosecutors wrote.
Nightingale's scheme was uncovered in April 2023, when CrowdStreet nominated an independent manager, Anna Phillips, to take over the accounts. That summer, she put them into bankruptcy and began the process of trying to claw back the money.
She and Schwartz signed a settlement agreement in October 2023 in which he agreed to pay back the money in installments. He made one $3M payment in January 2024 before defaulting on the deal.
As part of that agreement, Schwartz agreed to vacate his Manhattan penthouse that he bought for $18M in 2018 to allow Phillips to market and sell it. While it had been listed for $19M, Schwartz and his family have refused to leave. The bankruptcy judge overseeing the settlement on Wednesday ordered the Schwartzes to leave the premises by May 21 or pay $10K a day in contempt fines.
“Taking an old man’s retirement money while you’re living in a multimillion-dollar penthouse in Manhattan doesn't seem to be fair or right,” John Lee — a 69-year-old from Harrisburg, Pennsylvania, who invested $45K through CrowdStreet in the Atlanta Financial Center deal — told Bisnow this week.
Garrett wrote in his memo that Schwartz is an “amazing person” who “makes people feel seen, heard and appreciated.” He filed letters of support from Schwartz's business partners, family members and friends to bolster his argument that the Brooklyn-born real estate tycoon was an honest businessman who made a bad decision out of desperation.
For the first time, the memo also lays out Schwartz's purported motivations for committing fraud. Schwartz's other investments in commercial real estate were failing after the onset of the pandemic, Garrett wrote, and his cash reserves were dwindling. Nevertheless, Schwartz, who had amassed a $10B portfolio to that point, was self-assured to a fault.
“But his boundless belief in his own abilities, seemingly justified by his record of success, caused him to take outsized risks,” Garrett wrote in his memo. “He was almost too comfortable with high-pressure, high-risk investment ventures.”
Schwartz, who had invested in big-ticket office properties up and down the East Coast, raised money through personal relationships, even with his institutional backers. But using CrowdStreet, which developers had used to raise quick capital from online investors, was different. He didn't know his investors. Once the Atlanta campaign went live, tens of millions of dollars hit a bank account he had unfettered access to.
“Although he didn’t realize it at the time, that ended up making a critical difference in how Elie viewed the investors and their funds,” Garrett wrote.
As his other investments were failing, Schwartz “knew” he needed to access the CrowdStreet money, even though he had explicitly agreed not to. As interest rates started rising in 2022, Nightingale had to issue capital calls at his other properties, but his investors failed to heed them.
Even amid his own distress, Schwartz knew an upside-down market was a great time to hunt for deals, which led him to CrowdStreet and the Atlanta Financial Center. But despite striking the deals and raising the equity, he couldn't close.
“With no other funds available, Elie had to draw more and more frequently from the escrow accounts to try to keep the deals alive, and then for personal expenses too,” Garrett wrote. “Elie always thought, perhaps out of hubris, that he would pull the deals and his companies out of the nosedive, right up to the moment when the last desperate effort to recoup his losses failed, the money ran dry, and the plane slammed into the ground.”
Once that happened, Garrett says Schwartz immediately began cooperating with Phillips and, eventually, federal investigators. He also claims Phillips has made “false accusations” about Schwartz's behavior in bankruptcy court.
Since his crime was exposed, Schwartz has been working with the Aleph Institute, a nonprofit that supports incarcerated Jewish individuals. That time has been spent in “intense religious study, community service and therapy,” Garrett wrote. He asked the court to sentence Schwartz to probation, citing a letter from Rabbi Yossi Bryski, the Aleph Institute's director of alternative sentencing.
“Through a combination of bad luck and outsized self-confidence, [Schwartz] found himself in an unprecedented financially precarious situation,” Garrett wrote. “Instead of playing by the rules and accepting that this time he wasn’t going to [be] able to close the deals, he went for broke, sure that in the end by sheer force of will he could save the situation. He couldn’t.”
Jarred Schenke contributed to this story.
Read Elie Schwartz's defense sentencing memo, written by his attorney, public defender Colin Garrett.
