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For Immediate Release:  
For Further Information Contact:
April 19, 2006

Office of The Attorney General
- Zulima V. Farber, Attorney General
Bureau of Securities
- Franklin L. Widmann, Chief


Peter Aseltine


Attorney General Obtains Order Freezing Assets of Monmouth County Man and His Real Estate Firm in Alleged $8 Million Securities Fraud

TRENTON – The Attorney General’s Office today obtained a court order freezing the assets of Gary S. Klein of Colts Neck and his real estate company, R.E.I. Group Inc. of Asbury Park, in connection with allegations that they defrauded investors in the sale of nearly $8 million in promissory notes, Attorney General Zulima V. Farber announced.

Superior Court Judge Alexander D. Lehrer of Monmouth County issued the order this morning freezing the defendants’ assets in response to a complaint filed by the Attorney General on behalf of the New Jersey Bureau of Securities alleging that the defendants made false representations about real estate investments backing the promissory notes and misappropriated investor funds. The state also has requested appointment of a receiver to take possession of any assets owned or controlled by the defendants.

“We’ll do everything in our power to secure restitution for the investors who are victims of this alleged fraud,” said Attorney General Farber. “This asset freeze is an important first step in recovering investor funds.”

Investors in New Jersey and Florida were promised extraordinary rates of return and were led to believe that their funds would be used to purchase particular properties, the suit alleges. In reality, Klein allegedly diverted millions in investor funds for his personal use and for other expenses, including unrelated real estate ventures, payment of other note holders, and inflated salaries and commissions, according to the state’s complaint.

An investigation by the Bureau of Securities revealed that REI Group’s real estate assets are inadequate to back the promissory notes, and its operating expenses far exceed its operating revenues. The defendants allegedly have been using money from new investors to pay old investors, in the typical fashion of a Ponzi scheme. The Attorney General’s Office and Bureau of Securities worked cooperatively with the Monmouth County Prosecutor’s Office, which executed search warrants today at the REI Group offices at 601 Bangs Avenue in Asbury Park and Klein’s home on Hambletonian Way in Colts Neck.

The state’s suit also names Joseph Spugani of Boca Raton, Fla., who allegedly sold the REI Group notes; Nizar Azzam, the company’s vice president; and a number of related companies. Neither the promissory notes sold by Klein and REI Group nor the agents who sold them were registered with the Bureau of Securities as required by state law.

“Our investigation revealed a consistent pattern of fraud in which investors were led to believe they would receive huge returns from the defendants’ real estate investment, development and rental activities,” said Bureau of Securities Chief Franklin L. Widmann. “Meanwhile, Mr. Klein allegedly diverted millions in investor funds for his personal use, including construction and furnishing of his luxury home in Colts Neck.”

Agents were paid commissions to market the promissory notes as “investment vehicles” for investing in real estate. Investors allegedly were promised a return of anywhere from 12 percent to 85 percent over periods of one to two years. Investors were told that REI Group generates capital gains and income through real estate investment and development as well as rental properties. The defendants represented on the company’s Web site that REI Group’s “income producing properties generate over $1.2 million of annual gross rental income” and that “each property [of REI Group] generates positive cash flow which is mostly reinvested into the business.”

Typically, Klein would raise money from investors in connection with the purchase and development of a specific property or properties. He then would use a portion of the money raised as a down payment on the property or properties, and finance the remainder of the cost through a commercial mortgage loan, the state’s complaint alleges. The investor money that was not used for the down payment allegedly would be commingled with money raised for other properties and used for personal expenses or other costs, including the servicing of existing debt and repaying other investors who requested a return on their investments.

The investigation was conducted for New Jersey by Chief of Enforcement Richard Barry, Supervising Investigator James Lane, Investigating Attorneys Julian Leone and James Monagle and Investigator Isaac Reyes, all of the Bureau of Securities. Julie Yoo assisted in the investigation by the Bureau. Deputy Attorney General Anna Lascurain, Chief of the Securities Fraud Prosecution Section of the Division of Law, and Deputy Attorney General Samuel Cornish handled the case for the Attorney General.

The state’s complaint is posted on the Attorney General’s Web site, linked to this release at Investors can telephone the Bureau of Securities at 973-504-3600, or call toll-free from within New Jersey at 1-866-838-6240. They also can reach the Bureau through its Web site at

>> R.E.I. Group Inc. Complaint (1.53mb pdf) plug-in

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