By Shereen Siewert

WAUSAU — The CEO of the real estate development company overseeing a multi-million dollar riverfront development project is one of two men mired in a $8.3 million securities ripoff scheme in Colorado, a Wausau Pilot and Review investigation has found.

Court documents show that Jason Sharkey, who is heading up the Riverlife development team as CEO of Quantum Ventures, served a two-year diverted sentence in Denver, Colo. after accusations surfaced in 2006 that he and a business partner defrauded 21 Denver-area investors through a complicated real estate investment scheme. The case made past headlines in the Denver Post, which published a story of their own on Monday.

A review of court records shows Sharkey ultimately entered into a deal with prosecutors in the case, agreeing to repay nearly $900,000 in restitution and interest. A multi-million dollar civil lawsuit brought by seven investors ended when Sharkey’s partner, Hidai Freeman, declared bankruptcy.

According to the criminal complaint, Sharkey and Friedman were doing business through a company called Klyties Developments in which they lured investors by guaranteeing at least 10 percent annual returns with little or no risk, telling investors their money would be secured by a trust.

But prosecutors say that trust never existed, and the duo instead paid original investors with money from more recent investors.

Thomas Severino Jr. said he and his wife lost $40,000 in the Colorado investment scam and Sharkey continues to pay him about $15 a month of the restitution owed him. Hundreds of people were taken for millions of dollars in the fraudulent deal, Severino said.

When told that Sharkey is involved in the Wausau development he was incredulous.

“That’s insane. That’s just crazy that’s what that is,” Severino said. “He’s just full of lies, more lies than truth.”

He was critical of Wausau city officials who approved Sharkey’s involvement in their project.

“They are doing an injustice to their city. I would demand that they do a background check on everyone involved,” Severino said Friday. “He’s going to steal from them too. That’s what he does.”

Court documents show that Severino attempted to verify Klyties’ financial fitness by requesting a company audit before handing over his money. In response, court documents state, Severino received information later found to be falsified, including an email from a financial services group that contained what appeared to be a summary of a Klyties audit. Investigators say that email was a mock-up that came from a phony account from a man who appears not to exist.

After the fraud was discovered, Thomas Ritchie, a securities investigator with the Alberta Securities Commission, undertook an extensive review into Klyties business operation, including the properties Klyties claimed to own in their marketing materials. Ritchie’s investigation revealed that at least two of those properties did not exist, and a large shopping mall claimed on the asset list was in fact wholly owned by an unrelated Vancouver-based development company.

Pam Russell, spokeswoman for Colorado’s First Judicial District Attorney Peter Weir, said Sharkey’s restitution was transferred to civil court after he paid a tiny fraction of the $891,337 he owes to victims.

In the summer of 2009, midway through Sharkey’s sentence, a judge allowed him to move to Wisconsin, where he was monitored by Wisconsin probation officers, Russell said. He was obligated to pay $400 a month and 50 percent of any commission.

Judges routinely dismiss charges against defendants if paying restitution is the only obligation outstanding, Russell said. Defendants often have little or no means of paying the restitution, she explained.

Quantum Ventures is not the city’s first partner in the multi-phase project. City officials in February 2016 chose Frantz Community Investors to spearhead the development, which is meant to be Wausau’s crown jewel upon completion. Frantz had been competing with Mosinee-based S.C. Swiderski for the project.

In June 2016, the city council approved a $2.74 million aid package to support the project, which includes $500,000 in grants for the building foundations. All the funds will come from tax increment district financing.

Then in December 2017, members of the economic development committee unanimously approved a change in the financing structure when Barker Financial, which provided construction financing in the early stages of the project, withdrew from the plan. Barker was replaced by Quantum Ventures.

Mike Frantz, a principal in Frantz Community Investors, is the sole remaining partner still involved in the project.

Frantz described Sharkey to members of the economic development committee during a January meeting as an investor with “very deep pockets.”

The revelations raise questions about how city officials perform due diligence on economic development projects funded in part by taxpayer dollars.

Experts throughout the industry say that such agreements, especially in tax increment districts, should rely heavily on thorough investigation and should always include a  look at the credit rating, references, bank statements, resumes and financial statements of the key financial players in the project.

Wausau’s process involves examining the developer’s construction budget, the status of the organization and a “brief financial history,” according to Economic Development Director Chris Schock. The developer is also required to “provide a statement regarding any debarments, suspensions, bankruptcies and/or loan defaults,” Shock said.

In a paper published in the Missouri Municipal Review, Tom Kaleko, who has more than 20 years of local government experience in Kansas, Missouri, and Iowa, wrote that the best developer reviews are conducted through a combination of methods including written requests for information, reference checks, independent research, developer interviews and site visits.

“Hopefully, you wouldn’t go into a private venture using your personal nest egg without knowing your business partners; we owe our constituents the same protections as we enter into public-private partnerships using public funds,” Kaleko’s paper reads.

Kaleko, in a phone call on Friday, said he could not comment publicly on Wausau’s policies or situation because the city is a former client of his current employer, a public sector advisor firm called Springstead.

When reached for comment about Sharkey’s past misconduct, Schock said he had not known about the case. Still, Schock said, he is not concerned.

Sharkey is “one of a team of people” brought in by the developer, who ultimately has to secure the financing to finish the project, Schock said. The project’s success will be based on its marketability, he added.

“If the project doesn’t come together the city would be in a position to choose another developer,” Schock said. “I’m quite confident in the marketability of the project.”

Schock said he does not envision potential changes to the way the city vets partners for future developments.

During a Feb. 6 meeting, Economic Development Chair Tom Neal said the city’s protection is “quite clear” because Wausau’s investment in the project is contingent upon “stages” being met.

To date, the city has funded $372,462 toward the project as part of a pre-development loan, according to Finance Director Maryanne Groat. The bulk of that number, $290,078.50, was paid to Mudrovich Architects of Wausau for design and engineering costs, Groat said. The remainder was split between Baker Tilly and Ayers & Associates.

Groat said that before any additional funds are disbursed, the developer must provide a wealth of information to the city. That includes a certified project cost breakdown, a detailed completion schedule, proof that a third-party loan has closed and is available for disbursement and proof that they have funds sufficient to complete the project, among other requirements.

Sharkey is not the first partner in the project to come under scrutiny. Paul Pappageorge, who is listed as chief financial officer in Frantz’s original proposal for the city, also has a troubled financial history, including being personally named in a $127 million 2011 FDIC lawsuit in connection with the failed Mutual Bank of Harvey. The bank’s failure was one of the largest in the U.S., according to the FDIC.

It is not clear if city leaders were given the information about Pappageorge’s background before choosing Frantz Community Investors for the project.

Mike Frantz himself is entangled in several Wisconsin lawsuits. A Florida company claims Frantz owes the company more than $153,000 after a check paying for design services at Green Bay’s Hotel Northland bounced in January, according to court documents. Frantz Community Investors is also named in the suit, which was filed Feb. 3 in Brown County Circuit Court. In a separate case, a mortgage foreclosure filed against Frantz in Walworth County was dismissed Feb. 28.

During a Feb. 6 meeting of the economic development committee, Schock said the city’s risk is mitigated because Wausau only acts as a gap financer for the project. Schock said Quantum is working with a “couple of different parties” for financing.

But at that meeting, Frantz claimed that Quantum already has a commitment letter from a senior lender, and has invested “close to $1 million” in the project to date. It is not clear if members of the ED committee have seen such a letter or even if one exists. Such a document was not included in the committee’s packet prior to the meeting or in a Quantum Ventures FAQ sheet given to committee members, but not publicly shared.

Clay Dougherty, the third principal partner in Quantum Ventures, responded on Sunday to a request for comment with a full statement from Sharkey regarding the matter. In his statement, Sharkey claims that he, too, was a victim of the scheme and that Friedman duped him into believing Klytie’s was a legitimate company.

Sharkey said he never knowingly lied to anyone about the fund, and was just as surprised as anyone when the full extent of the fraud was revealed. All potential investors and lenders are aware of what occurred, Sharkey wrote, describing himself as an “unwitting investor and employee of Klytie’s.”

“We are still in discussion with potential equity partners and lenders and plan to have permanent financing for Riverlife secured in the weeks ahead,” Sharkey’s statement reads.

The statement, in its entirety, is embedded below, as is the federal complaint that describes the allegations in detail.

The first Riverlife phase will be followed by additional phases to add more housing and other mixed-use buildings, officials said. The total project could cost between $80 million and $100 million to build, according to city documents.

An update on the Riverlife project is on the agenda for Tuesday’s meeting of the economic development committee. The meeting will be held at 5:15 p.m. in Council Chambers at Wausau City Hall.Sharkey Complaint

20 replies on “Court docs: Riverlife developer CEO embroiled in $8.3M Colorado ripoff”

  1. Glad to hear Mr. Schock is not concerned about the current situation. But then again, he doesn’t seem to be concerned about anything these days.

  2. How is is that Wausau city staff and Wausau Council, are unable, unwilling and/or incapable to do the most basic due diligence to protect the financial interests of the taxpayers of the City?

  3. Even a non-economic development professional knows a fraud when they see one. I spoke to this very issue at a recent City Council meeting. The two people who are truly looking out for the interests of Wausau taxpayers, Becky McElhaney and Dennis Smith are told by city staff to not worry, everything will be OK. Really??? Mr. Schock should go!! He and all his friends are taking this city in a precarious direction, remember “Moody’s down graded bond ratings.”

  4. Almost unbelievable! LIke with Thomas Street, the intrasigent ingnorance of our city officials is on full display. Neither Mr. Shakey nor Mr. Frantz have the credit histories to raise money for the riverfront project. Neither appear to have any record of successful developments. Clearly, there have been enough factual misrepresentations by the principals of Quantum Ventures to void this contract. Any attempt to justify the city’s lack of due diligence and give assurances of future success are laughable. We’ve been duped big-time, and residents genuinely have a right to feel ashamed of their city government.
    Seriously, why won’t your elected officials, namely Mayor Robert Mielke, Finance Committee Chairperson Lisa Rasmussen and Economic Development Committee Chair Tom Neal, hold staff members like Community Development Director Chris Schock, Finance Director MaryAnne Groat or City Attorney Anne Jacoboson accountable for their failures and for contributing misleading information to the council? Why persist with this charade? It is incomprehesible!
    Rest assured that from Thomas Street to the riverfront, no one is looking out for the public’s interest. And, citizens are going to keep getting fleeced until they decide to do something about it at the ballot box.

  5. Tom Neal, I told you so. I sensed a “Big Hat, No Cattle” line of BS coming from Frantz when he flew into town to beg you for his City grants, and most of the council bought it. Please put Mr. Shakey on a plane and have him report to the Economic Development Committee on Tuesday. This guy ran a Ponzi scheme in his very recent past; if that’s the kind of “deep pockets” he’s talking about, we shouldn’t be in business with him.

  6. Let me see if I got this right. Mr Sharkey was convicted of running a Ponzi scheme and entered into a plea deal agreeing to pay back about $900,000. He is paying one victim in Colorado $15 a month on the $40,000 he owes him. Now, this same person who is paying off a $40,000 debt at $15/month is being represented as the “deep pockets” behind the Riverlife project? Remember, these are the same people who started out doing business out of a post office box in Timbuktu, South Dakota and only rented office space in Wausau (we think) when readers of this newspaper called them out on not being registered to do business in Wisconsin. This whole project has become a bad joke. The City of Wausau is well on its way to becoming the Banana Republic of Wausau.

  7. I might actually have to attend a city council meeting sometime, for the sole reason of seeing these incompetent fools in action. Schock should change his last name to Schultz……as in Sgt. Schultz, because he evidently “knows nnnnnnnnuthing”. Lame attempt at humor aside, this is simply disgusting.

  8. Wausau hits another iceberg! Or maybe we just went in another circle and hit the same iceberg again. It’s time to change the captain of the ship running this circus.

    Let us remember that we can help to change the course of this disaster by being more careful of who we vote for representing us in this next election.

    Oh by the way Mr. Mayor, this doesn’t get you off the hook with elections 2 years away.

  9. I have been thinking about this all morning. First off, great watch dog work from Wausau Pilot.

    Secondly, I think Chris Shock is pretty good at his job, and I like him as a person. But, this feels like it is is lining up to lay at his feet.

    And substantively, I think it is fair to ask questions about how the process has gone to this point on this project? How did we get to these individuals as developers? What specifically was the vetting process that was in place or not in place? Did the City of Wausau know about issues brought to light in this article, and still accepted these as the taxpayer business partners?

    Because that is what this has become. Who has the City of Wausau put the taxpayers into business with? This is a multimillion dollar project, and people like Romy appear to me to be more concerned about murals on WoW than who we entered into business with. The language from city council members is stronger on murals, than it is on this.

    Again, substantively, is there a set of guidelines for entering into business with someone for the city? Meaning, if the city does a check, and finds a lawsuit or something, is that scored against the proposal?

    How does all this work?

    1. Chris S. is nothing more than a co-conspirator in this mess. The final decision was made by 9 members of the city council who voted in favor of this mess. It would appear the two that voted NO on the project had it right all the time.

      The problem is the Chris S. did not due any research to discover who the city would be partnering with.But then again, maybe he doesn’t care as long as he can make a deal.

      1. That might be right Stan. But, without a sense of guidelines, specifically if there are guidelines that Shock must work with in, I do not know if he did anything wrong. Meaning, if there are no parameters, he might actually be free to do whatever he wants, and the council would be free to do whatever it wants. Again, without a guiding plan, with boundaries, we are free to do and spend whatever we want on whatever we want. And there is no mechanism, save for the elections, to provide a backstop.

  10. Tom Neal – still crickets. MaryAnne Groat – still crickets. Lisa Rasmussen – still crickets. Pat Peckham – about to defend the rationale. Chris Schock – “not worried” . Give me a break. This council and economic development is a joke, I would be shocked if anyone outside of Smith and Mcelhaney can even balance their own check book. These leaders (and I use that term loosely) should be ashamed of themselves. This is beyond being fiscally irresponsible, it’s pure negligence. If not negligence, it’s stupidity. Now the question is do these leaders prefer to be considered negligent, or stupid?

  11. Mr. Schock is supervied by the mayor. Mr. Schock staffs the Economic Development Committee, chaired by Tom Neal. What do our elected officials have to say about this? They really owe us some answers.

  12. A number of city of Wausau issues and concerns is the Mayberry USA mindset IMHO; some city procedures (or there lack of nor city monitoring) is the 1960’s mindset and it is 2018. RFP guidelines are set up by Schock/Groat or others…… BUT should include having INDEPENDENT REVIEW PANEL CRITIQUE and SCORE the proposals. By having alderpersons and city department heads doing the scoring process….with a bias of wanting these proposals to happen, you could possibly go ahead no matter what on bad proposals which should be declined and considered unacceptable. QUALIFIED city professionals would have done this type of due diligence on RFP guidelines. I have seen review panels done on a national or regional basis…so there isn’t any local bias. IMHO, the city of Wausau is DECADES behind the times in handling RFP’s and grants management….and that is WHY I am not surprised at all. I have been advocating in public comments to the city to clean up their act for years on grants management and monitoring.

  13. Under public record request, I asked for more details on the Riverlife project of the city of Wausau. My request and the city answers are in capital letters:

    On Thursday, January 11, 2018 11:08 AM, Debra Ryan wrote:

    Hi Toni-

    As an open records request, I am requesting all legal and financial information that the city has on Frantz Community Investors for the Riverlife project: including:

    Owners and their legal home addresses; THE CITY HAS NO SUCH RECORDS
    Current and former staff names, positions and how long held or formerly held, and their home addresses; THE CITY HAS NO SUCH RECORDS
    the legal and audit firms currently or held in the past on this project BAKER TILLY ADVISED FRANTZ ON RIVERLIFE PROJECT

    Please include audit reports that the city has in your possession from Frantz Community Investors; THE CITY HAS NO SUCH RECORDS Please include all information on their incorporation (in the state of Iowa or other states) PLEASE LIST SPECIFIC RECORDS “ALL INFORMATION” IS NOT SPECIFIC ENOUGH TO SEARCH FOR RECORDS and their IRS application THE CITY HAS NO SUCH RECORDS and all paperwork regarding obtaining the FEIN for their company. THE CITY HAS NO SUCH RECORDS

    Please include on all information the city has on Barker Financial as well as on Quantum Ventures. PLEASE LIST SPECIFIC RECORDS “ALL INFORMATION” IS NOT SPECIFIC ENOUGH TO SEARCH FOR RECORDS

    I would prefer the material be available as a pdf file so I can review at home and make copies of whatever material on my own.

    Sincerely yours,

    Debra Ryan, MBA

Comments are closed.