Two Arraigned In Niagara-area Investment Racket

Attorney General Spitzer today announced the arraignments of a former Niagara County securities investment advisor and the president of a now bankrupt Florida land development company for grand larceny. The two are accused of bilking over 200 investors, most from Western New York, out of $19 million through the sale of worthless promissory notes in a failed Florida real estate development.

"Trusting people lost their life savings in a scheme that was guaranteed to fail," said Attorney General Spitzer. "My office is committed to doing all it can to prosecute the wrongdoers and help the victims recover their savings."

Richard Muto, 45, of Corta Bella Estates, Las Vegas, Nevada, formerly of Lewiston, NY, and Jeffrey Lavern Klein, 47, of North Palm Beach, Florida, pleaded not guilty today to a 15-count indictment before the Honorable Joseph S. Forma, in Erie County Supreme Court in Buffalo.

Muto and Klein were each released on $100,000 bail which they must post by 4 p.m. on January 14. In addition they were ordered to surrender their passports, report by telephone to the Attorney General's Office at least once per week, and sign a waiver of extradition.

Muto and Klein were each charged with five counts of Grand Larceny in the Second Degree, a "C" Felony, each of which is punishable by up to 15 years in prison; two counts of Grand Larceny in the Third Degree, a "D" Felony, each of which is punishable by up to seven years in prison; seven counts of Fraud in the Sale of Securities, an "E" Felony, each of which is punishable by up to four years in prison; and one count of Scheme to Defraud, an "E" Felony, punishable by up to 4 years in prison.

Prosecutors alleged at today's arraignment that defrauded investors bought promissory notes in Sweetwater Development Corporation from Muto, an investment advisor and the owner of Tax & Investment Strategies, Inc. Sweetwater, incorporated in Delaware, was created to finance a project called Spring Lake Village, a gated community in Kissimmee, Florida. Klein and Muto were the president and vice president of Spring Lake Village, a Florida corporation.

Muto allegedly began marketing the Sweetwater promissory notes in October, 1996, claiming that the investment was safe, guaranteed, and risk-free. Muto used his family's roots in the local community to convince financially inexperienced residents to invest in the scheme. The Attorney General's investigation revealed that these deals were extremely risky and speculative.

According to prosecutors at the arraignment, investors poured millions of dollars into Sweetwater after being lured by Muto's assurances and his promises of high interest rates on the promissory notes. Payments on the notes were to come from the profits of the sales of houses at Spring Lake Village. Between October 1996, and December 2001, more than $19 million was raised in Sweetwater promissory notes, mostly by Muto in Western New York and elsewhere. However, less than half of the $19 million invested in Sweetwater actually went into the Spring Lake Village project. The project was never profitable, despite continuing reassurances to the contrary by Muto.

According to prosecutors, the monthly interest payments to existing note holders, as well as payments for the surrender of notes, were paid for with money from new investors recruited by Muto, not from profits. New investors received worthless Sweetwater promissory notes issued by Klein. By 2001, Sweetwater had been operating at a loss for almost five years. There were insufficient numbers of new investors to make good on all the outstanding interest payments and note surrenders. Muto, at Klein's urging, continued to enlist new investors, still claiming that Sweetwater was "guaranteed," "risk free," and "insured."

Individuals concerned about their investments with Richard Muto may contact the Attorney General's Criminal Prosecutions Bureau in the Buffalo Regional Office at 716-853-8400.

The charges in this case are accusations and the defendants are presumed innocent until proven guilty.

This case is being handled by Assistant Attorney General Diane M. LaVallee of the Criminal Prosecutions Bureau with the assistance of Robin Day and Investigator Harold Frank of the Attorney General's Office. The work of New York State Police Senior Investigator James Probst and his unit was especially valuable. The investigative team received considerable assistance from the Regional Computer Crime Lab in Buffalo.