Companies affiliated with embattled congressman George Santos have drawn scrutiny from lawmakers, regulators, and experts as the newly elected Republican faces increasing political pressure to step down for lying about his background.
Santos, who represents suburban areas of New York City, has been under fire since shortly after his election in November for inventing key parts of his education and work history, and building significant wealth virtually overnight that he may have used to finance his campaign.
In addition to claiming a false work history with major investment banks, Santos’ most recent professional history all leads back to a fund that federal regulators called a Ponzi scheme in a 2021 lawsuit for using new investor money to pay back previous investors. Independent experts said the company’s statements, including some Santos repeated, raise red flags.
- Santos said he led the efforts of that firm, called Harbor City Capital, in New York City. He made multiple false statements about the company in interviews during his first campaign for Congress. The Securities and Exchange Commission said Harbor City Capital raised $17.1 million in order to enrich the company’s founder, but did not name Santos as a defendant.
- After that, Santos started a company, Devolder Organization LLC, with help from a company linked to Harbor City Capital’s chief financial officer. Devolder Organization is the company that Santos claimed on financial disclosures grew to a value of between $1 million and $5 million virtually overnight, and paid him a $750,000 a year salary.
- Devolder Organization then co-founded a related company: Redstone Strategies LLC. That company shares a name with entities that solicited donations for Santos’ campaign, according to the New York Times. A Democrat in Congress has requested an investigation for potential campaign finance violations.
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What we know about Harbor City Capital
Based in Melbourne, Florida, Harbor City Capital, and its affiliates offered numerous investment opportunities, promising annual returns between 10% and 60% that would be paid in monthly installments and before returning the customer’s original investment once the investments matured, according to the SEC complaint.
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“When somebody’s offering 60% returns, it’s not that there has never been an investment that returns 60% legitimately,” said Mitchel Zuckoff, a journalism professor at Boston University who wrote a book about the original Ponzi scheme. “But they are so exceedingly rare that the idea that they could simply be available to you should automatically send up just a whole carload of red flags.”
The company said it would use investor money to help generate internet sales leads for other companies, and then sell those sales leads to business clients at a “substantial profit,” according to the SEC.
- Kyle Welch, an accounting professor at George Washington University with expertise in financial fraud, said companies like Facebook and Google have cornered the market on targeting customers, and called it “dubious” that Harbor City Capital would have been able to make those transactions.
Santos was not named in the SEC’s complaint. Inquiries to his Capitol Hill office and to his lawyer were not returned.
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Santos’ role in Harbor City Capital
Santos boasted in a 2020 interview during his first congressional campaign about his work for Harbor City Capital, falsely claiming it was a Fortune 500 company and repeating the false claim that he previously worked for J.P. Morgan and Goldman Sachs.
“I manage all of our fixed income assets with arbitrage here in New York,” he said. “I’m actually Harbor City Capital’s head guy for New York City. We’re based out of Melbourne, Florida. I’ve been with the company a little over a year.”
In April 2020, Santos tweeted out a plug for the company. “@HarborCityCap offers you a strategy that mitigates loss and risk while creating cash flow, meanwhile your principle (sic) is 100% secured by an SBLC held by various major institutions,” he wrote, referencing a type of safety net on an investment called a standby letter of credit.
- Welch said it is unclear how much, if any, Santos knew about the Ponzi scheme, but his statement was nonetheless problematic. “Your principal is guaranteed?” Welch asked. “That’s the whole point of investing is that you can lose money, and that’s how you can earn a return. Anytime somebody guarantees a return like that, it’s a red flag for anyone with the remotest financial literacy to run for the hills.”
In a video obtained by CNN, Santos said during the 2020 campaign he managed a $1.5 billion fund for Harbor City Capital and boasted about giving record returns. “Nobody in the market is giving 4 (percent returns) and we’re giving 12,” he said.
Santos also told an investor he had personally raised $100 million for the fund, according to documents obtained by the New York Times that USA TODAY has not independently reviewed. That’s many times higher than the $17.1 million the SEC said was raised.
- The investor in question was the cousin and money manager of a Russian oligarch who has been sanctioned by the United States, according to the Washington Post.
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What we know about Devolder and Redstone
Santos registered Devolder Organization LLC, also based in Melbourne, in 2021, about a month after the SEC filed its complaint against Harbor City Capital. The company’s registered agent was another financial company tied to the chief financial officer of Harbor City Capital. Santos was the sole member of Devolder Organization LLC.
- Santos reported in his 2022 financial disclosures required of congressional candidates that he made a $750,000 salary through Devolder Organization LLC and that he was the sole owner. He wrote that the company did “capital intro consulting” — a type of matchmaking between wealthy potential investors and hedge fund managers — and had a value between $1 million and $5 million.
- The state of Florida dissolved the company for failure to file its annual reports. Santos filed to get the company reinstated Dec. 20, this time using an address in Merritt Island, Florida, according to records with the secretary of state.
Santos described what Devolder Organization does in a December interview with Semafor. He helped people who want to sell luxury items like planes or yachts connect with buyers.
- “If you’re looking at a $20 million yacht, my referral fee there can be anywhere between $200,000 and $400,000,” he told Semafor.
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Redstone Strategies
Very little is known about Redstone Strategies LLC, but it is registered at the same Merritt Island address that Devolder Organization put on its filing for reinstatement. The filings show Devolder Organization is a co-founder.
- The New York Times reported that an entity claiming to be called Redstone Strategies raised money on behalf of Santos’ campaign. The company in question claimed to be a federal fundraising committee — not an LLC — but is not on file with the Federal Election Commission.
- On a separate occasion, Redstone Strategies claimed to be a 501c4, according to the New York Times. That’s a type of organization that registers through the Internal Revenue Service and does not have to disclose its donors but is prohibited from spending more than half of its money to support political campaigns. A search through a public IRS database for “Redstone Strategies” does not return any results.
- “I believe the FEC owes it to the American public to investigate the activities of Redstone Strategies, the source of its funding, and ascertain the truth surrounding its relationship to the Santos campaign,” Rep. Ritchie Torres, D-N.Y., wrote Jan. 17 in a letter to the FEC.
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What other investigations does George Santos face?
- Santos could face an investigation from the House Ethics Committee after two Democrats requested one in relation to his financial disclosures. That committee handles these types of matters confidentially.
- Anne Donnelly, the district attorney in Nassau County, New York stated publicly she would be investigating Santos.
- New York Attorney General Letitia James said she was “looking into” issues but did not confirm an official investigation.
- Several news outlets have reported that Breon Peace, the top prosecutor in the Department of Justice’s Eastern District of New York, is investigating Santos’ financial dealings.
- The Campaign Legal Center and Rep. Ritchie Torres, D-N.Y., have requested the Federal Election Commission investigate Santos’ campaign funding.
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