Five Men Accused of Selling False Real Estate Investments

Many investors are looking for a way to get into the real estate market while minimizing their risk. There are a number of ways to do so, such as purchasing shares in a real estate investment trust, a company that manages properties and pays investors a share of the income. Unfortunately, the prospect of real estate income may also be used to lure investors into a securities fraud scheme.

SEC Says Men Used Investor Funds as “Candy Store”

The U.S. Securities and Exchange Commission recently accused five five men of doing just that. In a civil complaint filed on September 11 with a federal court in Arizona, the SEC outlined a Ponzi-like scheme where the five defendants allegedly defrauded investors out of approximately $18 million. The SEC said almost all of the money was used to finance the defendants’ lifestyles, rather than purchase and develop real estate as investors were promised.

The defendants allegedly sold promissory notes in a number of companies. (The SEC noted none of the defendants were registered broker-dealers, even though they allegedly told investors they were.) In one such offering, the SEC said the defendants told investors their money would be used to purchase “waterfront investment property in San Luis Rio Colorado, Sonora Mexico,” and guaranteed returns on the notes of between 25 and 80 percent. A second offering said funds would be used to develop recycling systems in Chicago and Nevada, with investor returns of between 12 and 36 percent. A third offering promised 20 percent returns by investing in “residential properties for resale” in Maricopa County, Arizona.

All of these offerings were fraudulent according to the SEC. Indeed, the SEC said 97 percent of the $18 million raised through the three promissory note sales were “misappropriated” by the defendants for their personal benefit. The SEC claims one defendant said the investor funds were his “personal (expletive) candy store,” and used about $10 million—more than half the total raised—to pay for “strip club outings, vacations to Hawaii and Disneyland, car payments, food and entertainment, and other personal recreational and living expenses.” Additionally, the SEC said about $4 million returned to some investors in the form of “Ponzi-like payments,” which allegedly went either to relatives of the defendants or individuals who threatened to sue them.

Need Help from a Securities Lawyer?

Investors should always perform due diligence before investing in any securities offering backed by real estate. Many real estate investment trusts, for instance, are registered with the SEC. You should also purchase securities, including promissory notes, from registered broker-dealers. In the case above, the SEC noted none of the defendants were registered broker-dealers, even though they allegedly told investors they were.

But if you have lost money in a real estate investment scam, it is equally important to seek independent legal advice. An experienced Florida securities fraud attorney can advise you on how to proceed against someone who has abused your trust and misappropriated your money for their personal use. Contact Gregory Tendrich, PA, in Boca Raton if you would like to speak with an attorney right away.