Updated: October 26, 2013 1:00AM
A former northwest man and his partner fraudulently raised more than $9 million from about 25 investors in a scheme that involved converting apartments into condos, federal prosecutors claim.
The men then spent much of that money for personal use in a Ponzi-type scheme that cost investors at least $5.5 million, according to the U.S. Attorney’s office, which announced the indictment on Friday.
Marcin Malarz, 48, formerly of Lake Forest; and Arthur Lin, 39, of Palatine, are each charged with three counts of wire fraud in the indictment returned by a federal grand jury in Chicago on Thursday.
The indictment alleges Malarz used about $2 million in investor funds to pay outside business expenses, travel, pay off credit cards and his home mortgage; and buy furniture, clothing and a Mercedes-Benz.
Lin paid hundreds of thousands of dollars of investor money to his wife, generally in increments of 10 percent of each loan or investment he got for MEI, the indictment alleges. He used it for personal items, including credit card and home equity loan payments.
The indictment seeks about $5.5 million in cash, Lin’s home in Palatine, and other homes in Palatine and Barrington.
Lin will be arraigned later, while Malarz is a fugitive believed to be living in Poland, according to federal prosecutors.
Lin was a branch manager for a securities broker-dealership in Itasca and an officer of Malarz Equity Investments, managed by Malarz, the indictment claims. The firm would buy apartment buildings and convert them into condos, then resell.
Lin’s part of the scheme was to recruit investors for Malarz and MEI from his securities firm’s client pool, sometimes convincing them to take home equity loans or liquidate other investments for cash, the indictment claims.
From November 2005 through April 2010, Malarz and Lin sold investments in promissory notes and obtained loans by lying about the risks involved, the indictment charges. The fraud involved lying about the financial condition of MEI; returns on investments; how funds would be used; and guaranteeing investments and loans.
If convicted, both defendants face up to 20 years, fines of $250,000, and must make full restitution.
It is not the first run-in with the law for Malarz and Lin. The SEC sued them, along with third man, in December 2011, charging they raised more than $14 million from 43 investors between 2006 and 2009
The Securities and Exchange Commission filed its own civil enforcement action against Malarz and Lin, as well as another man, in December 2011.
The suit alleged they fraudulently raised almost $14.4 million from at least 43 investors in an almost identical scheme between September 2006 and at least January 2009.
Lin and his wife, Gloria, reached a settlement with the SEC in December 2012, in which they did not admit guilt, but did agree to stop working as securities brokers.