The idea for investors promised great returns on a business that bought discount blocks of hotel rooms and then resold them to an airline at a high price.
Denny Bhakta has raised at least $28 million from dozens of investors for the project, according to court records. But prosecutors say the entire attempt was bogus.
Bhakta was arrested Tuesday at his San Diego home and faces federal charges of securities fraud and money laundering, according to the U.S. Attorney’s Office. The US Securities and Exchange Commission filed its own civil complaint against Bhakta on the same day.
Bhakta is accused of siphoning off too much investor money for personal expenses — from skyrocketing credit card bills to a $7,800 department store purchase to millions of dollars in bets in Las Vegas and California casinos, according to court records.
In July 2018, Bhakta transferred $600,000 from one of his company’s accounts to a casino in one day, and over two additional days deposited $30,000, $70,000, $100,000 and another $100,000 into a casino for chips, according to the Securities and Exchange Commission complaint.
Prosecutors said some of the money was used in a Ponzi scheme to pay off some of the money from previous investors.
Bhakta, 39, worked at the Hilton San Diego Bayfront from 2008 to 2010 as a revenue manager, according to a search warrant affidavit disclosed Wednesday.
He allegedly told at least one investor that he had good relations with Hilton from his work there, and that his mentor at Hilton now works for United Airlines, the affidavit said. Prosecutors claim that Bhakta will use both companies as central players in the scheme, starting in 2016.
Bhakta told investors that his company – Fusion Hotel Management and Fusion Hospitality Corporation – were able to buy sets of hotel rooms from Hilton and then resell them to United Airlines, which regularly gives passengers as a courtesy when there are overnight flight delays, state court records. .
One investor specifically told he was $120,000 short to complete a pending $2.7 million deal at the Chicago Hilton O’Hare Airport, according to the affidavit. He said the rooms were previously sold to United at a profit margin of $40 per room on 30,000 rooms, according to the affidavit. Court documents say Bhakta promised investors returns of 10 percent or more.
Bhakta provided investors with documents, including contracts and bank statements, that purportedly show transactions between different companies, but that prosecutors say were fabricated.
During his testimony before the Securities and Exchange Commission in October, Bhakta admitted that the transactions did not occur and the documents appeared to be forged. The affidavit stated that he denied that he was the one who fabricated them and did not mention who was responsible.
Investigators have contacted Hilton and United, and both companies deny making such deals with Bhakta or his companies, the affidavit said.
At least one of his Bhakta investors was a family member, and several of them have taken him to court with lawsuits to compensate for their losses. In March 2020, a San Diego Supreme Court judge ordered Bhakta and Fusion to pay $5 million to the investor. The alleged victim told investigators that he had not yet received any payments.