Richard Osty and Ronald Moore
Richard Osty, left, and Ronald Moore both pleaded guilty in connection to a real estate scam. (DuPage County Sheriff's Office photos)
 
By Clifford WardSpecial to the Tribune
4:50 p.m. CDT, June 6, 2013
Richard Osty solicited hundreds of thousands of dollar from investors who thought they would profit by building houses in low-income Chicago neighborhoods. But authorities say the cash they entrusted to Osty was instead spent on things like Osty’s groceries, dental work and karate classes.
As part of a plea deal, Osty, 72, of Waukegan, pleaded guilty Thursday in DuPage County to one count of theft over $500,000 and was sentenced to six years in prison. He was also ordered to pay more than $760,000 in restitution to the 55 people he victimized.
In exchange for his admission of guilty, prosecutors dropped more than 100 felony counts from a housing scheme authorities say Osty perpetrated for about 3 1/2 years until 2010.
A co-defendant, Ronald Moore, 58, of Wheaton, pleaded guilty to a misdemeanor count of attempted securities fraud for playing a part in the scheme and was sentenced to 24 months of conditional discharge and ordered to pay $35,000 in restitution. Moore helped line up investors, prosecutors said.
According to prosecutors, Osty allegedly told investors he would purchase, on the investors’ behalf, vacant land from the City of Chicago for $1 per lot in low-income neighborhoods. Investors would then secure loans and give Osty money to build modular “green” housing on the lots.
He told investors that his company had procured buyers for the houses via two Chicago entities that provide mortgages to certain low-incomes applicants. Each investor paid Osty $1,500 to be placed on a list with other financial backers, who would get their opportunity to build a house in the chronological order in which they paid Osty.
When the investor’s name reached the top of the list, the investor would take out a loan to finance the building and put the money into an account that Osty could access, Assistant DuPage County State’s Attorney Diane Michalak said. When the house was completed, the investor would sell the house to a pre-arranged buyer, and the investor would earn a 10 percent profit from the sale, she said.
“Some investors purchased multiple reservations,” Michalak said. “The investigation revealed no such chronological list existed.”
Osty collected $294,000 through the sale of the reservations and other fees he assessed the investors. Four investors gave him $466,000 via loans for land purchases and construction, Michalak said. Two investors now own vacant land in the Englewood community of Chicago — bought for $15,000, not the promised $1 — and are liable for property taxes and upkeep, Michalak said.
One couple provided Osty with $310,000 to purchase and build on two lots, but did not end up with houses or land for their money, the prosecutor said. Two investors actually ended up owning houses that were constructed on plots along Englewood Avenue.
In September 2009, 15 investors demanded their money back and Osty promised refunds, but failed to deliver, Michalak said. A later examination would show that, at the time, Osty only had about $600 in his various bank accounts.
After an investor complained, a police detective interviewed Osty at the Wheaton office where most of the transactions took place. Osty told the officer that he had purchased 11 lots in Chicago for $1 each. But the detective found out that the lots were actually owned by Neighborhood Housing Services of Chicago, a non-profit organization that provides services aimed at revitalizing neighborhoods.
Carol Grant-Hall, an NHS official, met with Osty in 2009 and examined the two houses Osty had built on Englewood Avenue, but told prosecutors that she did think the residences were up to code. The agency never contemplated entering into any agreement with Osty, according to prosecutors.
Forensic accountants who examined Osty’s expenses found that he had spent almost $17,000 on dental work, and another $1,100 on karate classes. Michalak said it appeared Osty had spent some money on superficial aspects of the business plan, like wining and dining clients.
“He’s either the world’s worst investor or he was up to something,” she said.
In the late 1980s, Osty faced a civil suit from the Illinois attorney general’s office, which said he had taken more than $100,000 from investors in another failed plan which involved the purchase of a recycling plant. As a result of that suit, Osty was permanently banned from selling securities in Illinois, according to prosecutors.
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