December 10, 2005

Vladislav "Steven" Zubkis, a San Diego businessman with a long history of promoting fraudulent investments, was arraigned yesterday in federal court on 36 counts of mail fraud, wire fraud and money laundering.

Zubkis, a 46-year-old Ukrainian immigrant, defrauded investors of more than $1.8 million in two schemes during 2003 and 2004, one related to the proposed construction of a storage facility and the other to the renovation of a Las Vegas casino, according to the indictment.

Zubkis, dressed in a white jumpsuit and sporting a mane of curly gray hair, entered a plea of not guilty in federal court yesterday. Assistant U.S. Attorney Sanjay Bhandari asked that Zubkis be held without bail, citing him as a flight risk and an economic predator who poses a danger to the community.

he judge agreed and scheduled a hearing on Zubkis' detention for Dec. 20. If convicted on the fraud charges, Zubkis faces up to 20 years imprisonment on each of 34 counts, and up to 10 years imprisonment on each of two counts of money laundering.

The office of the U.S. attorney declined to comment on Zubkis' latest problematic business venture, a proposed luxury time-share housing development in Baja California that he has been promoting this year. Sources close to the Zubkis investigation said the Baja project is part of an on-going probe.

Zubkis first gained notoriety in the 1990s when he defrauded investors who bought stock in his now-defunct Stella Bella Corp., a bogus chain of coffee houses. In 2001, a federal judge imposed a $21.5 million judgment against Zubkis and banned him from being an executive or officer in a public company.

The indictment this week caps a two-year investigation by the FBI and the Internal Revenue Service, and stems from Zubkis' activities in 2003 and 2004.

Despite the 2001 court-ordered ban barring him from serving as a director or officer of a public company, Zubkis continued to peddle stock and control the workings of International Brands Inc. (IBI), a successor public company to Stella Bella, as well as affiliated companies. IBI is no longer a public company.

In 2003 and 2004, Zubkis and a network of salesmen persuaded mostly elderly investors to buy into separate schemes to build a chain of storage facilities and to acquire a controlling interest in a Las Vegas casino, according to court documents and former investors.

Zubkis made repeated misrepresentations to investors, including "baseless predictions about the future revenues and stock price" of the company he was promoting, according to the indictment.

In the storage facilities project, Zubkis did not tell investors that he used their money to pay upfront commissions of up to 20 percent to salespeople who solicited them to invest.

Nor did Zubkis tell investors that San Diego County had rejected his permit application to build a storage facility. Between May 22, 2003, when the county rejected the permit application, through Nov. 6, 2003, Zubkis took in $936,696 from investors, who never saw a dime of return, according to the indictment.

From November 2003 until March 2004, Zubkis, through San Diego Properties, again solicited investors, this time with the promise of a casino project.

Investors were told that the project would have a high rate of return – every penny share would quickly be worth $5 or more upon a projected initial public offering, according to the indictment.

The investors were not told that by Nov. 14, 2003, Zubkis had defaulted on a contract relating to Castaways Casino, and after that date had no contract to acquire a controlling interest in that casino or any other.

Zubkis took in $875,665 from investors from Nov. 15, 2003, after his Nov. 14 contract default, to March 30, 2004, according to the indictment. Again, investors never saw a dime in return.

The often flamboyant Zubkis, who has boasted in court documents about his bad-boy business ways, has since enjoyed a lavish lifestyle while thwarting attempts by former investors and the U.S. Securities and Exchange Commission to collect on millions of dollars in court judgments and regulatory fines.

Zubkis has been aided by a complex network of shell companies and offshore accounts that he allegedly devised to hide his assets, according to the SEC and other court documents.

In October, Zubkis filed for bankruptcy, a move the SEC alleged in a court filing last month was done to "further delay the SEC in the enforcement of the judgment."

In 2003, the SEC seized a 75-foot luxury yacht and an account containing $46,795 controlled by Zubkis, and has been battling in court with Zubkis and companies controlled by him to liquidate them. In June, a judge granted the SEC's request to sell the yacht, but the bankruptcy has stalled the sale.

At the time of Zubkis' arrest Thursday, he was paying $6,000 a month to rent a four-bedroom, three-bath home in Coronado, and driving a Rolls-Royce, according to his landlord, Gil Roesch. Zubkis is behind on his rent.

Zubkis has been working on another problematic venture this year, a project described in sales materials as either the Baja Vacation Club or the Baja Las Vegas project. Investors were asked to pay $13,000 for a time share in the venture, and promised a profit of $286,000 to $715,000 on that investment, according to sales material available in May on the Internet site of San Diego Properties, a company in which Zubkis is listed as general partner.

At the time, state and city officials in Baja California said they had received no applications or issued any permits for such a project. Zubkis maintains an ornately decorated office in Puerto Nuevo, but a local resident said it was closed yesterday. Zubkis had prepared, but never opened, a similar office in downtown Rosarito Beach's main strip.

Rosarito Beach developers, real estate agents and business groups have been trying to get Zubkis to stop operating in Baja California, said Gustavo Torres, head of the Rosarito Beach real estate agents organization, AMPI. But authorities have said they cannot take action until a client comes forward with a complaint, Torres said.