U.S. Securities and Exchange Commission Litigation Release No. 26305, dated May 7, 2025.
The SEC charged Joshua Schuster and his real estate firm, Silverback, for defrauding investors in a $6 million capital raise for a Manhattan condominium project. They are accused of misappropriating over $2 million of these funds for personal use, corporate expenses, and other projects, while also misleading investors about the project's financial status.
In Plain English
Imagine you and your friends give money to someone to build a special treehouse. You're told the money will only be used for that treehouse. But this person secretly takes a big chunk of the money to buy toys for themselves, pay for their own snacks, and help build other treehouses. They also don't tell you that some of the money they did use for the treehouse came with big debts that are overdue. The SEC is stepping in because this person broke the rules about being honest with the money you all gave.
Disclaimer: all facts are drawn from the SEC's own filings; the claims described are allegations unless and until a court rules or the parties settle, and some cases end in dismissal.
How the Alleged Scheme Worked
- Raise Capital for Manhattan Project Beginning in at least August 2018, Joshua Schuster and his firm, Schuster Enterprises LLC (d/b/a Silverback), offered membership interests in limited liability companies. They pitched these interests to investors as a way to fund the development of a high-end condominium project at 351-359 Second Avenue in Manhattan, known as the 'Second Avenue Project'.
- Promise Specific Use of Funds Schuster and Silverback represented to investors that their capital contributions would be used solely for the development of the Second Avenue Project. Investors were led to believe their money would be invested to create a profitable real estate venture.
- Secure Over $6 Million Through these offerings, Schuster and Silverback successfully raised more than $6 million from at least three investors. These investors expected their funds to be dedicated to the specified Manhattan real estate development.
- Misappropriate Investor Funds Instead of using the funds as promised, the defendants allegedly misappropriated over $2 million of the investor capital. This money was diverted for Schuster's personal benefit, to cover Silverback's general corporate and payroll expenses, and to fund other real estate projects developed by the defendants.
- Fund Other Projects (Ponzi-like) A portion of the misappropriated funds was used to finance other real estate projects developed by Schuster and Silverback. The SEC alleges these payments were made in a 'Ponzi-like' manner to investors in those other projects, suggesting a complex web of fund diversion.
- Continue Soliciting Funds Despite having already misappropriated substantial portions of the initial capital, Schuster and Silverback allegedly continued to offer membership interests and solicit additional capital contributions from the same investors. This continued solicitation occurred even after the funds had been diverted.
- Withhold Material Financial Information The defendants also misled at least one investor by selectively disclosing financial information. They failed to disclose the existence of certain material loans related to the Second Avenue Project that were in default, creating a false impression of the project's financial health.
- Conceal Misrepresentations To further conceal their actions and misrepresentations, Schuster and Silverback allegedly failed to provide the misled investor with accurate required periodic financial reports and progress updates. This prevented the investor from understanding the true financial condition of the project.
- No Project Revenues Distributed To date, the defendants have not distributed any revenues generated from the Second Avenue Project to the investors who provided the capital for its development.
The Enforcement Action
On May 7, 2025, the SEC charged Joshua Schuster and Schuster Enterprises LLC (d/b/a Silverback) with defrauding investors in a $6 million capital raise for a Manhattan condominium project. The SEC alleges they misappropriated over $2 million of investor funds for personal use, corporate expenses, and other projects, while misleading investors about the project's financial status, including defaulting loans. The SEC seeks permanent injunctions, disgorgement with prejudgment interest, and civil penalties against both defendants, as well as a conduct-based injunction against Schuster.