Amid the palm fronds and faux-colonial architecture of an all-inclusive resort in the Dominican Republic, a line of tanned women in clingy dresses stand and smile, while a techno beat thumps in the background.
The scene, captured in a corporate video, was shot at the Sun Village Resort & Spa near Puerto Plata. The then-Canadian-owned resort was hosting the ideal event to attract attention and fill rooms during the slow summer season: a beauty pageant sponsored by the men’s magazine Maxim.
Derek Elliott, the Canadian expat in charge of the hotel, looks a little sunburned as he stands at a podium to thank the magazine. “In addition to the beautiful women inside those pages, you’ll see some of the best brands of the world included there,” he tells the crowd. “We’re proud to be one of those.”
That was July, 2006. Four years later, the all-inclusive resort, with its seven swimming pools, five restaurants and thatched-roof villas—which once played host to movie stars and at least one billionaire—sits empty. Derek, 40, and his 68-year-old father, Fred, have left the Dominican Republic and are enmeshed in a tangle of court battles in four countries. The pair is accused of defrauding thousands of small-town Ontario investors, plus thousands more time-share buyers in Canada and the United States, of much of their life savings. It is alleged that the Elliotts were running a $170-million Ponzi scheme, promising supercharged returns but instead using the proceeds to support a lavish lifestyle (all currency in U.S. dollars, except where noted).
Though none of the allegations has been proven in court—and the Elliotts deny any wrongdoing—the legal troubles have cost them dearly. Their assets were frozen by a Florida judge in 2009, and the Sun Village resort, along with another Dominican project still under construction, was stripped from them in foreclosure, all but wiping out their little empire in the sun.
As for who’s to blame, the father-son duo claim that, rather than being the perpetrators of a sophisticated scam, they, too, are victims. They point the finger at their former business partner, James Catledge, an American multilevel-marketing guru they hired to sell their time-shares.
Both the Federal Bureau of Investigation and the U.S. Securities and Exchange Commission have launched investigations into the case. And Catledge has retained Las Vegas criminal-lawyer-to-the-stars David Chesnoff (he’s also acted for Britney Spears, Martha Stewart and David Copperfield). “Our position,” says Chesnoff, who said his client would not talk to the magazine, “is that Catledge is a victim along with the other people who invested, and is quite forthright in his adamant denials of any wrongdoing.”
Wherever the truth lies, the Elliotts’ story has enough twists that even Derek—who has helped produce two Hollywood films—acknowledges it would make a good movie. “Someone needs to do the script on this,” he says, sitting in the house in Carlisle, Ontario, where he grew up with his mother and is now living. “But I want to make sure it ends up a comedy, not a nightmare.”
A little north of the Ontario hamlet of Hillsburgh, in a landscape of rolling hills, dilapidated barns and the occasional sprawling three-car-garage home, lies Fred Elliott’s 98-acre farm. Three standardbred horses—temporary guests on leave from the world of harness racing—graze just beyond the “Trees for Sale” sign.
The property, which Fred bought in 1985, houses a stable that can accommodate eight horses, and a large shed that’s home to a vintage tractor and Fred’s Harley Davidson. There’s a runway and a hangar. Fred now rents it out for storage, but he keeps snapshots of the single-engine planes he used to own before the bad times hit. In a small building that serves as his and Derek’s office, a whiteboard lists the court cases in which they are involved, with a quotation from self-help guru Louise Hay scrawled across the top: “Everything is working out for my highest good.”
Inside the farmhouse, Fred, folds his lanky frame into a chair beside the fireplace. In his booming, folksy voice, he recounts how he launched his career as a mutual-fund salesman and investment adviser in 1967. He soon moved into real estate, selling investments in apartment buildings that could be fixed up and flipped. In his best year, he says, that business made him $1 million.
In 1986, when a friend urged him to invest in the Dominican Republic, he says he couldn’t have found the Caribbean country on a map. He started speculating on undeveloped land near Puerto Plata with 17 Canadians, each of whom invested more than $100,000 (Canadian). A few homes were built on spec, but nothing much happened.
Then, in the mid-1990s, an Austrian tourism outfit turned the beachfront land next door into a bustling resort. Fred and Derek went into business with the newcomers, agreeing to build hotel rooms on their land and then lease them back to the Austrians to operate. The Elliotts began raising money from mostly Ontario investors, many of them in rural areas or small towns. Over several years, they took in around $38 million by selling shares in various companies registered in the Dominican Republic and the Turks and Caicos. In Ontario, these were private placements—sales of stock that don’t require the filing of a complete prospectus to regulators.