National Realty Investment Advisors is known in Philadelphia for the thousand-plus rowhomes it has built for investors to rent out and as the owner of one of the city’s biggest development sites, the swath of Delaware River waterfront land where part of a sprawling casino complex was once envisioned.

Outside the city, the Secaucus, N.J.-based firm might be better recognized from its advertising blitz on Fox News’ Tucker Carlson show and elsewhere that has helped it raise more than half a billion dollars by promising investors market-beating returns from projects up and down the East Coast.

But there is much that NRIA hasn’t highlighted in its messaging.

Federal prosecutors have charged a key executive, Thomas Nicholas Salzano, 63, with fraud, saying he used phony loan papers to try to reel in an investor. Salzano helped lead NRIA after he settled with federal regulators in a previous financial fraud.

The FBI and the Securities and Exchange Commission, as well as financial regulators from three states, are investigating the firm. NRIA itself cited those probes in a recent prospectus for potential investors. No criminal charges or civil complaints have been made against the company.

NRIA says it has raised nearly $560 million from more than 1,400 investors, and wants to raise almost half a billion more. It has spent millions on ads on Fox and on radio spots, such as one voiced by Bill O’Reilly in which he says the firm provides a “10% monthly payout.”

But few of its biggest projects, so far, are contributing to those payouts. The former casino site in South Philadelphia, for one, where NRIA has said it plans a “private gated community” of three big apartment buildings, remains unbuilt.

Consequently, NRIA has another way of paying its existing investors: cash from new investors, as it noted in the prospectus, published in July. Experts say it’s risky for an investment fund to operate this way, since it may require ever more participants to be brought on board, rather than making money from its business.

NRIA said in an answer to questions from The Inquirer that the practice is part of its special “‘buy, build and sell’ strategy” which starts by returning some members’ capital contributions while the rest of their money is used to sustain lucrative real estate projects.

The company also said it discloses to investors how it plans to deploy their contributions. NRIA has never missed an investor payment and has never been sued by an investor, it said.

NRIA said it has sold more than $136 million in real estate this year, with more sales in the pipeline.

“We believe that we have done a fantastic job of maintaining progress, even during the COVID crisis; we suspect better than many other developers,” it said.

Claiming credit for at least some of NRIA’s recent regulatory scrutiny is self-styled corporate whistleblower Barry Minkow, who has been imprisoned for running scams of his own — twice.

Minkow, 55, raised alarms about the North Jersey firm in a memo to the SEC before the investigations were disclosed. It was one in a volley of alerts about different companies he sent to the agency aimed at least in part at collecting a share of any contraband cache the government might recoup through his claims.

He alleged in his complaint that NRIA was promising returns to investors it had little hope of sustaining.

“This is the craziest thing I’ve ever seen,” Minkow said of the firm’s alleged activities in an interview. “And I’m a crook.”

NRIA vigorously denies his claims, calling him uninformed and financially motivated.

Big payouts

NRIA was formed 15 years ago to build and renovate homes in Philadelphia so it could take advantage of the city’s policy of abating the first 10 years of property taxes on new construction.

Since then, the company has completed more than 1,100 Philadelphia dwellings, spanning from Port Richmond to Powelton to Pennsport, it said. They include the homes that make up the Bridgeview complex in South Philadelphia and Ortlieb Square in Northern Liberties.

NRIA’s pitch to prospective investors in these projects was that they could become landlords without the hassle of buying or building homes themselves, finding tenants for them, and then looking after the properties. NRIA offered to do all this — for a price.

Over the years, NRIA’s ambitions grew beyond its focus on those investor-landlords, culminating in 2018 with a widely marketed offering called the NRIA Partners Portfolio Fund.

The fund has comprised 20 of the company’s biggest developments, in Philadelphia, Hudson and Bergen Counties in New Jersey, Brooklyn, and Palm Beach County, Fla.

NRIA’s ads have been its most noticeable way of soliciting cash. The company has spent an estimated $9 million on TV ads since the start of 2019, $4 million of that in 2021 alone, according to the ad tracker iSpot. Nearly all of that cash went to Fox News for ads that mostly ran on the Tucker Carlson Tonight and Hannity shows.

One ad for NRIA enticed investors with “steady cash flow, plus safety,” and suggested that viewers tap their 401(k) or IRAs to buy in. Another advertisement, which ran during Carlson’s show as recently as two weeks ago, cited “targeted returns to 21%.”

For a sense of how high that number is, consider the $191 billion worth of apartment properties nationwide tracked by the National Council of Real Estate Investment Fiduciaries’ Property Index, most of them owned by insurance companies, pension funds, and other investors targeting safe, steady returns.

It rose only 7% in its most recent full-year tally, ended June 31.

But NRIA’s most eye-catching move could be its policy of using money raised through its stock offerings for uses that include “making distributions to the members,” as it disclosed in the July investor prospectus.

Company financial statements obtained by The Inquirer from 2019 show the company has been using new investors’ money to return capital to earlier investors since at least then. That year, its pretax income was just $1.6 million, but it paid out $11.7 million to investors.

The only pot of money available to pay those returns appears to be the $211 million in investor money it started off 2019 with, or the $94.7 million it collected in additional investment over the course of that year.

NRIA confirmed that “return of capital was paid from members equity” that year, the fund’s second in existence.

The company also acknowledged that those financial statements and ones it has produced since have not been audited by an accountant, as required by many investors, though they have been subject to less stringent reviews.

The firm, it said, “grew so fast the last few years it took time to catch up with the rapid adoption of our business plan by so many investors.” It promised audited financials in the future.

But the company said investors can take solace in its $50 million cash reserve, its $80 million bond portfolio that generates “substantial monthly interest” for the fund, and the value being produced by 27 smaller properties in Brooklyn, North Jersey, Philadelphia, and Florida that it bought from affiliates.

Properties within that group have sold for $174 million since 2019, most of it just this year, NRIA said. A spokesperson could not immediately answer how much the fund netted from those sales after repayment of mortgages and other expenses.

NRIA has “a solid property-sale pipeline to benefit our investors and to support them in the future.”

Still, it’s unusual for funds to use investor contributions, rather than income from the assets they manage, to make payouts to members, said Christophe Terlizzi, a veteran Philadelphia commercial real estate banking executive who now works as a consultant.

Unless or until such funds’ actual businesses start turning a profit, they’re stuck chasing down ever larger numbers of new investors to avoid defaulting on existing ones, which they may not be able to continue doing indefinitely, Terlizzi said.

“When the music stops, there’s nothing to distribute,” he said.

Indeed, NRIA has faced skepticism in the past.

In December, David Moon, president of Moon Capital Management in Knoxville, Tenn., wrote a column for the Knoxville News Sentinel urging investors to be wary of celebrity endorsements after hearing the Bill O’Reilly-voiced ad for NRIA on the radio.

“If there is some fantastic investment floating around that will safely pay you a 10% income or double your money in 2021, it’s unlikely Paris Hilton or Bill O’Reilly have the inside scoop,” Moon wrote.

Reached by phone, he declined to elaborate on his concerns, saying his column had drawn several weeks of threats of legal action from NRIA’s attorneys that he didn’t want to risk reigniting.

NRIA said Moon was a competitor who had unfairly exaggerated its spending on advertising, falsely claiming it allocated more to ads than it did to its building budget.

Law enforcement officials and financial regulators seemingly have concerns of their own.

The company is “presently being investigated ... in connection with the management and operation of the company and its compliance with various laws, rules and regulations,” NRIA said in its July investor prospectus.

NRIA was subpoenaed in March by the U.S. Attorney’s Office in New Jersey to testify and produce documents before a grand jury, it said. The SEC separately subpoenaed NRIA for documents twice this year, in April and May, it said.

The New Jersey Bureau of Securities, the Illinois Securities Department, and the Alabama Securities Commission have also asked NRIA for documents and information in requests spanning from August 2020 through May 2021.

Representatives of those agencies did not respond to requests for comment or declined to confirm or deny the existence of an investigation.

NRIA said it is cooperating with the agencies.

Meanwhile, in a separate criminal complaint filed by the FBI, company executive Salzano was charged with mail fraud and aggravated identity theft over the allegedly forged loan document. NRIA acknowledged in the July prospectus that the charge was “in connection with an offer to sell an interest in the company.” The SEC later filed a similar complaint in civil court.

No charges were brought against NRIA and the company said it has terminated its relationship with Salzano, who “is due his day in court.”

Salzano’s attorney, Washington, D.C.-based Jeffrey Harris, a former federal prosecutor and government antifraud litigator, did not respond to phone messages and an emailed list of questions.

Salzano has had serious run-ins with regulators before.

‘The Salzano Scheme’

On paper, it was Peter Salzano who led a firm called NorVergence Inc. in the early 2000s, when the telecommunications company was a celebrated Newark, N.J., success story, expanding into ever-bigger offices in that North Jersey city’s downtrodden commercial center.

Behind the scenes, it was Peter’s brother, Thomas Nicholas Salzano, who was calling the shots.

Thomas Salzano had installed his brother at the helm of the firm, keeping himself in the background, to avoid associating the company with his past bankruptcy and “record of regulatory problems,” bankruptcy trustee Charles Forman wrote in a filing after NorVergence’s collapse.

In 1998, another North Jersey telecom company led by Thomas Salzano, Minimum Rate Pricing Inc., had agreed to pay a combined $2.2 million in two separate settlements with the Federal Communications Commission and regulators in 20 states for changing customer’s long-distance phone carriers without permission, a practice known as “slamming.”

The following year, with $67 million in debt, Minimum Rate Pricing filed for Chapter 11 bankruptcy protection, the Record newspaper in Hackensack reported. Creditors accused Salzano of transferring $2.7 million in company funds to a Swiss bank during the bankruptcy proceedings and of placing hundreds of thousands of dollars in a scholarship fund for his kids, according to the Record.

His next business, NorVergence, ended up in bankruptcy court too.

The company had purported to be helping small businesses, churches, and nonprofits cut costs with a high-tech device — the “Matrix Box” — that allowed them to pay a flat fee for unlimited landline, cell, and internet service.

The devices were actually just routine networking boxes for drawing internet service from phone lines. They served little purpose for NorVergence’s customers, other than to lock them into long-term leases for the devices that vastly overstated their value, according to a Federal Trade Commission complaint targeting the Salzano brothers.

NorVergence sold off the right to collect on those leases to financial institutions in exchange for upfront payments, which it largely used to acquire new customers, Forman wrote in his filing. That left little cash to cover the company’s own bills to the telecom carriers like Sprint and Qwest that were actually responsible for its customers’ service.

By mid-2004, the two-year-old company’s financial obligations had outpaced its ability to sign up new paying customers and the company folded, filing for Chapter 7 bankruptcy. New customers never got the phone and internet service they had paid for and workers went unpaid, according to the FTC.

Forman described NorVergence as a twist on a Ponzi scheme, a business that sustains itself by acquiring more and more new paying customers, instead of ever turning an actual profit.

He called it “The Salzano Scheme.”

“The Salzano Scheme caused hundreds of millions of dollars to be funneled into the business, only to be expended on landing new customers, and the lavish lifestyle of [Thomas] Salzano, all to the detriment of NorVergence and NorVergence’s customers and creditors,” he wrote.

The trustee alleged that more than $2.5 million in company cash was funneled to Salzano and his “companions” over the life of the company. The money was used to buy a house for Salzano’s son, to pay a no-show salary to his wife, and to provide a limousine to ferry his girlfriend “to and from college classes,” among other things, Forman wrote.

Thomas and Peter Salzano were charged with engaging in unfair and deceptive acts by the FTC, eventually settling with the agency under an agreement barring them from making similar misrepresentations in dealings with future customers.

They also agreed to a judgment of $50 million against each brother, although the fines were mostly abandoned due to their inability to pay.

By 2013, Salzano’s only remaining pursuers were prosecutors in Louisiana, who that year secured a guilty plea to felony theft from the former executive on behalf of five businesses in the state’s Calcasieu Parish who were victimized by the scam, according to a report from KPLC-TV in Lake Charles.

Salzano was sentenced to three years of supervised probation. NRIA said Salzano’s plea had been entered under a diversionary program by which a judgment of acquittal would be entered at the end of his three years’ supervision.

“As such, Mr. Salzano stands acquitted of all charges,” NRIA said.

NRIA also said it had not been aware of Salzano’s bankruptcies and arrests when it hired him as a property consultant in 2006.

‘Bad cut-and-paste job’

At NRIA, Salzano played an “independent contractor leadership role,” the company said. The FBI identified him as a “senior independent executive advisor.”

His relationship with the company appears to have been anything but merely advisory — or independent.

He has appeared in news coverage as the company’s “VP,” led a panel discussion at an investor event in a “vice president” capacity, and appeared on the dais at the opening of an NRIA townhouse project, standing alongside other firm executives, a local mayor, and former New York Giants linebacker Lawrence Taylor.

He joined with a group of lawyers and developers to lobby a congressman to support a program that offers visas to wealthy foreign citizens in return for investment money, which is one way NRIA seeks to fund its projects.

Meanwhile, two lawsuits this year by former employees, both of whom allege retaliation for complaining about their treatment at the company, name Salzano as a defendant and identify him as a company leader. NRIA said one settled with no admission of culpability and the other was without merit.

A former NRIA employee, who asked not to be identified, characterized Salzano in an interview with The Inquirer as the business’ top boss.

NRIA said Salzano had been a “solid company manager for a long time” but “was not and is not an owner, shareholder, signor, director or [its] leader.”

The allegations that led to Salzano’s arrest in March, outlined in an FBI complaint and a later filing by the SEC, involve claims that he forged a loan document to get more cash from a woman in Cupertino, Calif. who had already invested $150,000 with NRIA’s fund.

In hopes of getting her to invest another $150,000, prosecutors say, he mocked up and gave her a purported letter from a lender confirming a $25 million mortgage for a North Bergen, N.J., apartment project.

But the investor took the extra step of confirming the deal with that lender. The lender later described the document as “a bad cut-and-paste job” and said it had actually stopped doing business with NRIA due to a previous “falling out,” according to the SEC.

When he sought to justify his actions, “Salzano’s explanations, both to the investor and to the lender, were replete with lies,” the SEC wrote.

The FBI charged Salzano with mail fraud and aggravated identity theft in a pending case in federal court in Newark. The SEC is seeking to have him barred from ever serving as an officer at a company that accepts most kinds of investment.

NRIA, for its part, moved to distance itself from Salzano, characterizing the loan incident in a notice posted to the Better Business Bureau’s website as an “isolated event” by an “independent contractor.”

The whistleblower

It was a little more than a year ago that ex-felon Barry Minkow sent a detailed memo to authorities leveling accusations against NRIA.

It was familiar territory for Minkow, who had previously parlayed his first-person experience as a fraudster to bust other scam artists — until one such bust turned out to be a scam itself.

In the 1980s, Minkow had been a celebrated business wunderkind after managing an initial public offering for the carpet-cleaning business he founded as a high schooler in his parents’ garage, known as ZZZZ Best. It was actually a Ponzi scheme that sucked in millions from investors for nonexistent job orders, he now concedes.

Emerging in 1995 from an eight-year prison sentence for securities fraud and racketeering, Minkow attended divinity school at Jerry Falwell’s Liberty University in Virginia and became a pastor at a church near San Diego while also researching companies he suspected of running scams like the one that landed him in prison.

The Fraud Discovery Institute, as he named his fraud-busting operation, supported itself by making stock-market bets against the companies he was targeting, seeing big returns when he publicized damaging information that sank their share prices.

The SEC later credited Minkow with helping the agency with five successful fraud investigations during this time that resulted in the return of some $680 million. He even went undercover to help the FBI nab a swindler in New Zealand, he says.

That all ended when Minkow used his megaphone to make inaccurate claims about a business, Lennar Corp., then profited from the home-building giant’s $500 million stock-market nosedive.

He was sentenced to five years in prison after pleading guilty to insider trading and securities fraud. Another five years were added to the sentence after he pleaded guilty to separate allegations that he embezzled more than $3 million from parishioners at his church.

Minkow finished serving those sentences in 2018. He got jobs with a California homeless-services agency and at a sports memorabilia company. He also began looking for new scams to uncover, this time focusing on privately held companies he couldn’t be accused of betting against on the stock market.

He decided to do this, he said, in the belief that he has a gift for seeing through graft that could save others from being scammed.

But he still wanted to make money from his sleuthing. Under SEC rules, “whistleblowers” who use special skills or knowledge to help recoup ill-gotten gains can get as much as 30% of the cash for themselves, although the agency is not obliged to turn over that full amount.

“Whatever they give, they give,” said Minkow, who has yet to earn any money from the government. “They could give nothing.”

Since leaving prison, Minkow said, he filed fraud allegations at 11 different companies with the SEC.

One preceded moves by the agency against Harbor City Capital near Orlando, Fla., whose founder was charged by the SEC in April with raising $17 million through a bogus investment scheme. Another targeted Prestige Equity of Dallas, which the Texas State Securities Board later shut down for running what it called a “fraudulent private-equity scheme.”

NRIA came onto Minkow’s radar after he saw its ads on Fox News, which he watches with some regularity. Between his prison stretches, in fact, he frequently appeared on Fox personality Neil Cavuto’s program as a fraud expert.

To ensnare NRIA, Minkow called the company purporting to be a prospective investor. This gave him access to financial presentations and marketing pitches that he used to compile his SEC complaint, a 16-page report with dozens of pages of appendices.

His overarching allegation is that NRIA’s promises of consistently high investment returns are implausible, and that the heavy borrowing disclosed in its documents suggests that its projects are too laden with debt to secure its investors’ cash.

Others are more specific.

For example, Minkow’s complaint includes an email exchange with an NRIA senior manager who offers Minkow a “profit sharing bonus” for referring a friend to invest in the company.

A fund manager paying an investor to recruit other investors may violate securities laws and rules that prohibit payments to persons who are not licensed as securities broker-dealers to engage in such marketing activities, said Robert N. Rapp, a securities law professor at Case Western Reserve University.

NRIA disputes that there was any violation, saying such bonuses are offered to large blocks of accredited investors, which is not illegal.

The company’s own underwriting and appraisals, meanwhile, demonstrate that its properties have “strong financial prospects and high values,” it said.

“Minkow’s statements are false, financially motivated and based on a complete lack of knowledge of the development business or any NRIA documents,” NRIA said.

No pulled punches

The prospectuses, known as private placement memorandums, that NRIA shares with prospective investors are filled with fine print that complicates the marketing in its TV and radio ads.

The Inquirer obtained two of the documents. One is from the Partners Portfolio Fund’s inception in 2018, which described a company narrowly focused on real estate development. The other, from this past July, is more expansive, extending into other lines of business as well, such as investing in bundles of real estate debt known as commercial mortgage-backed securities.

Both let readers know that investing in the company may be riskier and less immediately lucrative than its commercials suggest.

For one, investors don’t see checks for the “targeted returns to 21%” touted in its ad for a long time — at least five years, according to the July prospectus — after joining the fund.

In the short term, the company pledges that it will pay investors back 6% of the money they put up each year. The rest of their principal and any gains accrue in an account over those years for later disbursement.

Investors can’t touch those accrued returns or their principal investments for up to 2½ years, depending on which prospectus was in force when they joined the fund, and only then at NRIA’s “sole discretion,” both documents state.

“Investors may not be able to have their capital investments returned, in whole or in part, or in a timely manner, if at all,” cautions the earlier prospectus.

NRIA said investors join the fund knowing they’ll be getting only small doses of their cash back over a long period, with actual investment returns coming later, because they recognize that their money is needed by the company to see its development plans through.

“NRIA does not pull any punches,” it said. “Investors are fully cognizant that they have equity investments at risk with NRIA.”

Many of its major projects, however, are lagging the company’s own timelines.

Take the development of 18 fancy rowhouses at 23rd and Cherry Streets in Philadelphia being marketed as Logan 23. It was forecast to be completed and sold off within 2½ years in a plan that would deliver the fund $30.8 million, according to a July 2020 report on its real estate holdings.

But 3½ years have passed since it bought the property and fewer than a third have been sold.

Other projects that, based on their duration targets and purchase dates, should have been finished and sold by now, but aren’t, include a stately Brooklyn brownstone that NRIA is renovating and high-end townhouse and condo complexes in Boynton Beach and Delray Beach, Fla.

There’s also the Philadelphia Water Club, NRIA’s name for its proposed complex of three apartment buildings comprising more than 1,100 dwelling units on part of the large waterfront tract in South Philadelphia where the Foxwoods casino resort had once been planned.

The apartment complex was forecast to be completed and sold off within four years and was to yield $505 million for investors, according to the July 2020 report.

Three years and nine months after NRIA bought the site, though, the property remains a fenced-off lot overgrown with weeds. Construction has yet to begin.