Nightingale improperly invested $1M in REEC deal, $2.3M in SoHo: bankruptcy trustee

A bankruptcy trustee representing investors in Nightingale Properties’ failed Atlanta and Miami crowdfunding deals, alleged that former company CEO Elchonon Schwartz and the company made an improper $1 million investment in Real Estate Equities Corporation’s project at 2226 Third Avenue in East Harlem; as well as an improper $2.35 million investment in 300 Lafayette Street in SoHo; and similar investments in several other projects. The trustee is seeking to recover the funds.
Anna Phillips, as the liquidating Trustee of the ONH Liquidating Trust, (OHN is an acronym for Schwartz’s One Night Holdings) representing the allegedly defrauded investors, filed dozens of actions in U.S. Bankruptcy Court in Delaware on Friday seeking to recover some of the $62.8 million allegedly misappropriated through the crowdfunding scheme.
Schwartz pleaded guilty in February to a wire fraud count and was sentenced to 87 months in jail and ordered to pay $45 million in restitution. The trustee is seeking to recover funds that were raised for a planned development in Atlanta and a property in Miami but some funds were instead diverted to other Nightingale projects.
REEC 226 Third
300 Lafayette, One Whale, etc

Raven Capital Management bought a $40 million note secured by 2226 Third Avenue in East Harlem, as PincusCo exclusively reported last week. In 2023, InterVest Capital Partners bought a $143 million note secured by its joint venture with Nightingale Properties at 300 Lafayette Street.

According to the complaint that included the 300 Lafayette payment, “The CrowdStreet Term Sheets for the Atlanta Financial Center and Lincoln Place referred to the project offerings as “Specific Project Offerings,” which limited the use of proceeds to only certain pre-identified and selected properties which were readily identifiable. CrowdStreet Term Sheets… The MSA required that all funds raised from investors be held in a segregated account until the closing of the Atlanta Financial Center and Lincoln Place projects.”

According to the complaint seeking to recover $1 million from REEC, “After a series of transfers of the $1 million in funds traceable to ONH AFC CS, using bank accounts held by One Night Holdings and Mr. Schwartz (as detailed in the chart above), on August 9, 2022, One Night Holdings transferred the $1 million traced to ONH AFC CS to REEC (the “First Fraudulent Transfer”).”

“Furthermore, ONH AFC CS was insolvent at the time of, or was rendered insolvent as a result of, the Fraudulent Transfers on a balance sheet basis. On June 10, 2022, the date ONH AFC CS fraudulently transferred $1.2 million to One Night Holdings, of which $42,083.19 was ultimately transferred to or for the benefit of the Defendant on October 26, 2022, ONH ACF CS had $13,014,929 in assets and $19,715,000 in liabilities. As such, ONH AFC CS was insolvent, or as a result of the Second Fraudulent Transfer, became insolvent, in the total amount of at least $6,700,071, of which $42,083.19 is attributable to the Second Fraudulent Transfer.”

The trustee alleges between June 2022 and September 2022, Nightingale entities transferred $2.35 million to the company’s 300 Lafayette Street entity, despite those funds being restricted to Atlanta, according to the complaint.

Direct link to the property’s 300 Lafayette Street Acrispage

Direct link to the property’s 226 Third Avenue Acris page.