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In one TV ad last year, the firm offered “targeted returns to 21%.”
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National Realty Investment Advisors, a New Jersey-based developer that last year disclosed it was under investigation by federal prosecutors, the Securities and Exchange Commission, and state financial regulators, has filed for bankruptcy protection, court records show.
NRIA, of Secaucus, said in its Tuesday filing in U.S. Bankruptcy Court in New Jersey that it was seeking Chapter 11 in light of the firm’s financial condition.
The firm has since late April been under the leadership of an independent manager following the resignation of its longtime president and chief executive, Rey Grabato, according to the filing.
An attorney for NRIA didn’t respond to a request from Barron’s seeking comment on the petition.
NRIA’s principal offering is a real estate portfolio known as Partners Portfolio Fund, which is covered by the bankruptcy petition.
The firm has sought investors for the fund through frequent ads on national broadcast outlets such as Fox News and Bloomberg Radio that promised market-beating returns.
The portfolio comprises dozens of condominium, townhome, and apartment projects centered in Philadelphia, northern New Jersey, Brooklyn, and Palm Beach County, Fla. Three are nearing completion and 16 are unbuilt, according to a filing Wednesday with the bankruptcy court.
About 2,000 investors collectively hold around $540 million in shares of the company, according to the filing.
In a July 2021 offering memorandum seeking additional investment, NRIA disclosed that it may use cash from new investors to pay existing ones. That could be a risky way for an investment fund to operate, since it may require ever more participants to pay into the fund, rather than making money from its business.
NRIA also disclosed in the memo that it was under investigation by law-enforcement officials and financial regulators ”in connection with the management and operation of the company and its compliance with various laws, rules and regulations.”
The SEC, the New Jersey Bureau of Securities, the Illinois Securities Department, and the Alabama Securities Commission had all subpoenaed NRIA for documents, and it had been subpoenaed by the U.S. attorney’s office in New Jersey to testify and produce documents before a grand jury, it said in the memo. NRIA previously told the Philadelphia Inquirer it is cooperating with the agencies.
Separately, a former company leader named Thomas N. Salzano was arrested by the Federal Bureau of Investigation in February 2021 for allegedly using phony loan papers to try to extract more money from an existing NRIA investor.
Salzano’s initial court date on the criminal charges has been repeatedly delayed and is currently continued until at least July 29. The SEC has also filed a civil complaint against Salzano. An attorney for Salzano didn’t respond to a request for comment.
No charges were filed against NRIA itself in the case.
Before the disclosure of the federal and state investigations into NRIA, the firm had been the subject of an August 2020 report to the SEC by a convicted fraudster turned self-styled whistleblower named Barry Minkow, who said he gathered material from NRIA for the complaint by pretending to be a potential investor in the firm.
He alleged in his report that NRIA was promising returns to investors it had little hope of delivering.
In one TV ad last year, the firm said it offered “targeted returns to 21%,” according to the Inquirer.
NRIA vigorously denied Minkow’s claims to the Inquirer, calling him uninformed and financially motivated. Under SEC rules, some “whistleblowers” get as much as 30% of the cash recouped through agency investigations for themselves.
Among NRIA’s biggest creditors are Cipolla & Co., a Franklin Lakes, N.J., accounting firm, which claims to be owed $1.3 million, and the head of New York public-relations firm Repute PR, which has a $450,000 claim, according to the petition.
Neither responded to requests seeking comment.
NRIA’s 30 biggest investors had placed sums with the firm ranging from $952,580 to $5.5 million, according to the petition.
NRIA founder Grabato stepped down as the firm’s chief executive and president and appointed Brian Casey as independent manager on April 29, according to the bankruptcy filing.
Casey was fund administrator and co-manager of the Partners Portfolio Fund, according to a previous NRIA announcement. Casey didn’t respond to a request seeking comment.
Write to Jacob Adelman at [email protected]
