Suite Scams

Upscale addresses on Wall Street and elsewhere provide cover for all sorts of fly-by-night firms

By Matthew Goldstein

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David Esseks, a former prosecutor, says a fancy address can lend credibility Jens Umbach/Keiko Represents

A cease-and-desist letter from accounting firm Ernst & Young to Sucarato

Gottschalk claims she and her husband were tricked into giving Sucarato $450,000 Bill Cramer/Wonderful Machine

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Triangular 67 Wall Street was home to one of the most notorious virtual offices Jennifer S. Altman

To all appearances, Robert J. Sucarato was one of the world's most successful hedge fund managers. His main fund at New York Financial seemingly clocked gains of 20% last year and 55% in 2006, besting such star investors as Citadel Investment Group's Ken Griffin and SAC Capital Advisors' Steven A. Cohen. In three short years, he purportedly doubled the fund's size, to $5 billion. Rounding out the portrait of success was a spacious suite of offices at 67 Wall Street, an 87-year-old classic revival tower in New York's financial district. It was a fitting lair for a hotshot money manager.

But his tony headquarters on the 22nd floor of 67 Wall--as with much of Sucarato's story--may have been part of a carefully constructed facade. The suite turned out to be a so-called virtual office, essentially a high-powered address that Sucarato shared with dozens of others and rented for $100 a month. "I believed it was all his space," says Emily Gottschalk, a New Jersey businesswoman who invested $450,000 with Sucarato in February, 2006. "He was very good at illusions."

Regulators and law enforcement authorities are investigating allegations that Sucarato's entire operation may have been financial trompe l'oeil. Both the Commodity Futures Trading Commission and federal prosecutors in New Jersey are looking at whether the skinny 37-year-old deceived investors. Meanwhile, Gottschalk has filed a civil suit against Sucarato claiming the fund was "nothing more than a figment of Mr. Sucarato's imagination." Sucarato says he's done nothing wrong. "These investors are just after my money, and they will use anything against me," he notes, adding, "nothing will come of this nonsense when all is said and done."

A virtual office like Sucarato's is merely a more elaborate version of an old-fashioned post office box. Tenants get access to a telephone answering service, a reception area, and conference rooms for meetings, along with a mailing address. In that way, the location is not unlike an executive suite, a collection of fully furnished offices shared by several companies or professionals. But most tenants of virtual offices use the space only occasionally, if at all. There are more than 8,000 such facilities worldwide, 11 clustered in downtown Manhattan, according to real estate brokerage Instant Offices Group. The overwhelming majority of businesses and individuals that use virtual offices are perfectly legitimate.

Service Resource Industries ran the virtual office complex at 67 Wall Street for more than two decades, renting it out over the years to hundreds of lawyers, accountants, and other professionals. It was one of city's best deals on rent. "If you want a Wall Street address for $100 a month, you've got it," says SRI owner Stephen Luber, who relocated his virtual office down the street to 110 Wall in October after 67 Wall was converted to high-end condominiums.

ELABORATE CONS

But those dirt-cheap rents have also made virtual offices a breeding ground for fraud. Regulators and prosecutors have brought dozens of civil and criminal charges in recent years against defendants who used such spaces as their home bases. In the financial world, virtual offices are the new boiler rooms, the now infamous operations in which an army of young brokers hawk questionable stocks to naive investors. Virtual-office schemes have many of the same hallmarks. An outfit with a generic name and trumped up accomplishments develops an impressive Web site and adopts a prestigious address. The ringleaders then go to work raising money for supposed investment funds, real estate ventures, or other seemingly lucrative opportunities. The ruse works best with out-of-state investors, since they're less likely to pop into the office for a surprise visit. "The basic idea is to get whatever credibility you can with an address," says David Esseks, a former top federal prosecutor in Manhattan who headed the securities fraud team and is now a partner at Allen & Overy.

Law enforcement can have a tough time tracking down these fly-by-night firms, which often inflict their damage long before prosecutors get a whiff of wrongdoing. One stumbling block: jurisdictional problems. In many cases, virtual offices are rented by a front man in the U.S. while the perpetrators work out of another country. And if the victims live offshore as well, the cross-border scams may not get reported at all.