Aug. 11 (Bloomberg) -- Two owners of WexTrust Capital LLC, a Chicago-based real-estate investment firm, were charged with using a Ponzi scheme to cheat investors, including members of an Orthodox Jewish community, out of more than $100 million.

Steven Byers, of Oakbrook, Illinois, and Joseph Shereshevsky, of Norfolk, Virginia, were arrested today on charges that they stole funds raised in private placements. The U.S. Securities and Exchange Commission sued WexTrust and the two men and won an order today freezing the company's assets.

``One of the defendants used his extensive connections in the Orthodox Jewish community to solicit more than $250 million from unsuspecting investors,'' Andrew Calamari, the SEC's associate director of enforcement, said today in a statement. ``Our complaint alleges an affinity fraud of very large scale.''

In a Ponzi scheme, money from new investors is used to pay off old ones. WexTrust raised at least $255 million from at least 1,196 investors in the U.S. and abroad, and stole more than $100 million, the SEC alleged. WexTrust is a private-equity company specialized in real estate and investment banking, with offices in New York, Atlanta, Tel Aviv, Johannesburg, and Boca Raton, Florida, according to a January statement by the company.

A WexTrust spokesman, David Gutierrez, declined to comment.

Guilty Plea

Chairman Byers, 46, and Shereshevsky, who until recently was chief operating officer, were arrested on a securities fraud charge in Illinois and Virginia, respectively, U.S. Attorney Michael Garcia in Manhattan said in a statement. Shereshevsky, 51, pleaded guilty in 2003 to bank fraud, the SEC said.

According to authorities, Byers and Shereshevsky used money raised from private-placement investors to fund the firm's operations and repay earlier investors.

The government claimed that, in one example, the company raised $9.2 million from investors, telling them the money would be used to buy and operate seven properties that would be leased to the U.S. General Services Administration.

``The seven GSA properties, however, were never purchased, the monies raised to purchase the properties were used for some other purpose, and investors were not informed,'' Garcia said.

A private placement is a negotiated sale in which securities are sold directly to investors, rather than through a public offering.

60 Percent

Byers owns 60 percent of WexTrust, and Shereshevsky owns 20 percent, the SEC said. WexTrust is owner of at least 120 entities formed to acquire real-estate interests, and it has conducted at least 60 private placements since 2005, the SEC said.

``Defendants have been fraudulently raising money in the various offerings, each of which purportedly is for a particular investment, without disclosing that funds raised were actually being used to pay prior investors in unrelated offerings,'' the SEC said in its complaint.

The criminal case is U.S. v. Byers, U.S. District Court, Southern District of New York (Manhattan). The SEC case is SEC v. Steven Byers, 08-cv-7104, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: David Glovin in Manhattan federal court at dglovin@bloomberg.net.

Last Updated: August 11, 2008 16:44 EDT