Frank Castaldi: Businessman accused in 22-year Ponzi fraud

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Businessman accused in 22-year Ponzi fraud
January 23, 2009 12:13 PM | 5 Comments
A northwest suburban businessman who authorities say promised hundred of investors between 10 percent and 15 percent annual interest rates on promissory notes he sold them was charged today with operating a Ponzi scheme for more than 20 years, resulting in losses estimated in the tens of millions of dollars, the U.S. attorney's office said.

Frank A. Castaldi, 55, of Prospect Heights, was charged with mail fraud in a federal criminal complaint, according to a news release. He was expected to surrender voluntarily for an initial court appearance this afternoon.

About 200 to 300 investors were taken in by the scheme, according to the complaint.

The complaint states that, from approximately the early- to mid-1980s, Castaldi, his father and a business partner started two businesses -- CZ Travel and CZ Realty.

They later purchased ownership interests in First State Travel Service Inc., Parkway Towers Insurance Agency Inc. and Cumberland Realty Inc., which later became known as Remax Cumberland Realty, all located at 4501 North Cumberland Ave. in Norridge, the complaint said. Castaldi was the president of each business.

Beginning about 1986, Castaldi allegedly began offering and selling six-month promissory notes to investors, the majority of whom were referred to him by other investors, and included friends, family members and customers of his businesses, authorities said.

While the vast majority of the notes stated that the annual interest rate was zero percent, Castaldi allegedly orally guaranteed he would pay out between 10 percent and 15 percent, according to the complaint.

He lied to investors about investing their money in his various businesses, as well as the source of the funds that he used to make interest payments, the complaint said. At least five years ago, he allegedly began falsely telling investors that he was placing their money with financial institutions with which he had a special relationship and would guarantee their principal and high returns.

Instead, the complaint alleged, Castaldi obtained loans and used some investors' principal payments to make interest payments to other investors.

Last year alone, Castaldi allegedly renewed or issued promissory notes bearing a total face value of about $69 million.

Castaldi also is accused of losing his investors' money by funding a failed banquet hall and other failed businesses.

Authorities still are identifying victims of the alleged fraud. Those who believe they may have been victims are asked to call the U.S. attorney's office toll-free at (866) 364-2621.

The maximum penalty upon conviction would be 20 years in prison and a $250,000 fine, authorities said.