Former Rye Resident Charged with Bank and Wire Fraud

0:00 John Hanratty carved out an investment niche that appealed to people reaching for yield in a low-interest rate environment.  As founder and Managing Director […]

Published January 11, 2024 3:27 PM
3 min read

0:00

John Hanratty carved out an investment niche that appealed to people reaching for yield in a low-interest rate environment. 

As founder and Managing Director of Ebury Street Capital LLC, Hanratty, a former Halstead Place resident, invested in municipal tax liens, which are levied by municipal governments for delinquent property taxes and other fees owed by the owners. 

Municipal governments typically sell municipal tax lien certificates to the highest bidder at public auctions. Investors buy them because they earn a high rate of interest, often between 10 to 36 percent annually, until the underlying taxes are repaid. In addition, municipal tax liens frequently provide a path for investors to foreclose on the underlying property. 

Hanratty was arrested on December 18, 2023, in San Juan, Puerto Rico and charged with using a fraudulent scheme to steal money from a federally insured bank through lines of credit totaling $20 million granted to Ebury Street Capital. According to an FBI complaint, Ebury Street Capital and Hanratty have not made any principal or interest payments on its commercial lines of credit since around October 2021.

Court records say some investors sued Ebury in Westchester County Superior Court in January 2019 when they could not withdraw their investments. Ebury Street Capital’s lender, Emigrant Business Credit Corporation, subsequently filed a lawsuit of its own. FBI Special Agent Lauren Collins headed the investigation, which led to the arrest. 

Hanratty, licensed to practice law in the State of New York since 2002, has previously held legal and compliance positions at well-known investment firms and financial institutions, including serving as the Chief Compliance Officer and General Counsel for a trading broker dealer. 

Before moving to Puerto Rico, Ebury Street Capital was located at 56 Locust Avenue in Rye. According to investigators, between 2017 and 2021, Hanratty allegedly made materially false statements on spreadsheets, known as borrowing base certificates, submitted to Emigrant.

“The false statements on Ebury Street Capital’s borrowing base certificates included, among other things, listing large quantities of municipal tax liens on the borrowing base certificates that Ebury Street Capital did not actually own and double-counting municipal tax liens by listing the same liens on multiple borrowing base certificates,” investigators said. 

Ebury Street Capital was contractually required to use bank borrowings to purchase municipal tax liens or for ordinary business expenses. But according to investigators, Hanratty used portions of money obtained from the bank to pay off the Ebury Street Capital’s investors who ended up suing Ebury Street Capital and Hanratty, after Ebury was unable to pay investors seeking to withdraw their investments from the fund.  

Hanratty is charged with one count of wire fraud affecting a financial institution and one count of bank fraud, each of which carries a maximum sentence of 30 years in prison. Hanratty’s lawyer, Kari Parks, declined comment. 

Hanratty’s story, as detailed in civil court filings, suggests a business victimized by Hurricane Maria, which devastated Puerto Rico, in September 2017, a lender who decided to pull out of the tax lien business, and the ripple effects of the COVID pandemic in 2020. His story also points to tax lien broker he once shared space with, who allegedly stole escrowed funds from lien sales to support his lifestyle and other businesses.

As Hanratty put it in an October 2022 affidavit, “the pandemic caused many local government offices to close, thwarting taxpayers’ ability to draw and submit certified checks. Many relevant jurisdictions also imposed foreclosure and eviction freezes and closed their local courts. The pandemic and associated government closures slowed the Ebury entities to a trickle, provided only by those property owners who were sufficiently lucky and sophisticated to be able to continue to pay their debts.”

Hanratty is free after posting a $2 million bond, of which $400,000 is cash or secured, and he has surrendered his passport.

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