CHICAGO (MCT) — Myra Jo Fraley was looking for a little cushion for retirement when she invested in what seemed like a can't-miss opportunity.
On the advice of a relative, the great-grandmother gave $20,000 from her husband's estate to a company pitching time-shares in a luxury hotel in Cancun, Mexico. The company, she said, promised to find renters while investors sat back and collected handsome annual returns.
By the time Fraley learned it was a scam, her money was gone. Now, more than seven years after federal authorities charged the con artist who ripped off her and thousands of others across the country, Fraley survives on Social Security and her late husband's modest pension. She feels she's still waiting for justice to be done.
"I'm 80 years old for goodness sake. I could sure use that money," the Tennessee resident said in a recent telephone interview.
Federal prosecutors in Chicago say Michael E. Kelly ran one of the nation's largest Ponzi schemes, bilking nearly 8,000 investors in his resort properties out of an estimated $340 million.
Following Kelly's arrest, authorities embarked on an extraordinary effort to repay the mostly elderly victims as much money as possible by selling off tens of millions of dollars worth of real estate, a corporate plane, luxury cars, nightclubs and other holdings in his vast portfolio that stretched from the trendiest sections of Mexico to the beaches of Panama City.
But what investigators found was a tangle of properties in various stages of completion, often encumbered by foreign laws and devalued by the worldwide recession that devastated the luxury travel and real estate markets. Many have wound up being unloaded for far less than initially expected _ at a painstakingly slow pace.
Earlier this month, with attorney and consulting fees stemming from the sales continuing to mount, victims were notified the process could last well into 2014 and that they will likely realize less than one-fifth of their investments back.
Adding to investors' frustration is what some view as lenient treatment doled out to Kelly, 64, who is sick with possibly terminal colon cancer, according to court records. In an unusual arrangement, Kelly pleaded guilty last year to a single fraud count and was sentenced to time served, having already spent six years in federal custody awaiting trial. U.S. District Judge Ronald Guzman allowed him to post bond on the remaining counts and live temporarily in his wife's Indiana home while he undergoes chemotherapy.
Initially scheduled to last a few months, the bond was indefinitely extended over the summer. At a hearing earlier this month, prosecutors told the judge they were close to resolving the case, indicating another guilty plea to additional charges could be in the works.
Prosecutors say the effort to recoup the victims' money has been unprecedented and that even 20 percent would be far beyond the typical amount recovered in a fraud case. And the plea deal was the only way to ensure restitution for victims given Kelly's ill health.
Still, while all this has unfolded, the patience of many of Kelly's victims has worn thin. A number of investors have died waiting for a resolution, leaving heirs to take up their cause. Others have written to the court alleging those in charge of selling Kelly's assets and cutting checks to victims have dragged their feet to allow huge fees to pile up. Some believe Kelly should remain behind bars in spite of his illness.
"I for one just wish they would sell all his holdings for the best price and send us as much as they can before we all die," Fraley said in a handwritten letter to the court earlier this year. "This has gone on long enough and I do not believe that he deserves one iota of consideration."
A VERY UNCONVENTIONAL FRAUD
Most pyramid schemes leave nothing to salvage after their inevitable collapse. But after Kelly's scam imploded, authorities found _ with Kelly's cooperation _ a horde of real estate and other assets, from hotels already up and running to massive residential developments in the midst of construction.
"In nearly four decades of practicing (law), I have never seen a scheme to defraud where the defendant actually invested hundreds of millions into valuable property," said Kelly's attorney, Jeffrey Steinback. "In his mind, there was an exit strategy where he could possibly settle with everyone and get out ... It was a very unconventional fraud.
The crown jewel of Kelly's portfolio was Puerto Cancun, a sumptuous, 800-acre development on the oceanfront featuring luxury homes set on private canals, a golf resort, hotel, marina and condominiums.
After others had failed, Kelly took over the project more than a decade ago, winning the approval of the local governor and working with well-known developers and architects. To facilitate construction, Kelly even bought his own nearby quarry to supply the massive amounts of landfill needed to fill in swampland.
But like so many of Kelly's properties, Puerto Cancun was poorly managed and marred by sloppy recordkeeping, making it difficult for authorities to market once they gained control. It operated in a country where real estate deals are the purview of local politicians and often greased with bribes. Kelly's arrest had also made news in Mexico, scaring many potential buyers away. Even weather played a factor. Investors were still skittish over the possibility of another hurricane after Wilma devastated Cancun in 2005.
When a buyer finally came forward in 2011, victims were notified that a sale was imminent and given a chance to voice their approval or not. One victim, Charles Thompson, sent an email imploring them to "get this show on the road."
"My GOD how long is this gonna take???" he wrote.
Puerto Cancun was finally sold in 2012 for about $50 million after expenses, but other properties have been even more difficult to unload. On a recent morning at the Dirksen U.S. Courthouse in Chicago, attorneys updated the judge on the latest Kelly asset to hit the blocks — a 137-room hotel just off the beach in downtown Panama City. Despite its prime location, the luxury hotel is beset with massive liens and tax issues that are a huge red flag to investors.
Recently, an offer for the Panama hotel came in for $4 million, but after all the encumbrances are resolved and legal fees and closing costs are paid, less than $400,000 is expected to be left to put into the fund for Kelly's victims.
"We are extricating ourselves as best we can from it," Douglas Doetsch, the lawyer in charge of the liquidation, told the judge, who reluctantly approved the sale.
One by one, agreements are being reached for Kelly's other assets. Last month, the judge approved orders to sell two of Kelly's beachfront mansions in Cancun to developers for a combined $3.65 million as well as a cruising yacht named C'est la Vie for another $105,000. Lawyers told the judge they hoped an old health club Kelly had owned in town would fetch more than a million dollars despite its decayed condition.
"It's an unhealthy health club, you're telling me?" Guzman quipped. (c)2013 Chicago Tribune Distributed by MCT Information Services