SEC Charges Man With Promissory Note Fraud in Connection With Florida Property

On June 25, the U.S. Securities and Exchange Commission filed a civil lawsuit in Utah against Dwight Shane Baldwin, accusing him of securities fraud in connection with the sale of promissory notes backed by two defaulted real estate loans, including one in Seminole County, Florida. According to the SEC’s complaint, Baldwin acquired the defaulted loans through his now-defunct one-man company, Silverleaf Financial, LLC, and raised millions from investors without disclosing the actual risks involved.

The Oviedo Note

In 2010, the SEC said Baldwin purchased a package of discounted commercial loans from a bank. The largest of these loans, with a face value of more than $3.5 million, was backed by a piece of real estate in Oviedo, Florida. Baldwin paid about $12.8 million for the entire loan package; he made a $1.8 million deposit with funds he borrowed from another company.

Two weeks after buying the loan package, Baldwin resold the Oviedo note to a buyer in California. However, the SEC said Baldwin subsequently raised $2 million from a Utah investor, ostensibly for the purchase of buying the Oviedo note. In reality, the SEC said, Baldwin used the Utah investor’s money to pay back the $1.8 million he originally borrowed to buy the loan package. The Utah investor did not know Baldwin had already bought and resold the loan in question. After repaying his original lender, Baldwin deposited the balance of the Utah investor’s funds in an investment account under his control. Meanwhile, the Utah investor never received any return on his “investment.”

The Colorado Note

About a year later, the SEC said Baldwin convinced two investors to give him $6 million for the purchase of a second loan, this one backed by a resort property in Colorado. Baldwin allegedly told the investors he already had a buyer lined up for the Colorado note, so their investments carried no risk and would return a “significant profit within thirty days.” The SEC said one investor, relying on this representation, loaned $1 million to Baldwin via a promissory note.

Although Baldwin did in fact contact a potential buyer, it ultimately declined to purchase the note. The SEC said Baldwin never told either of his investors about the potential buyer’s decision. To the contrary, the SEC said Baldwin continued to actively mislead both investors. And as with the Florida note, the SEC said neither investor ever received a return on the money they gave to Baldwin.

Watching Out for Promissory Note Fraud

As always, an SEC complaint is merely a statement of allegations. But the SEC’s charges here illustrate how a person might use promissory notes as an instrument of securities fraud. As the SEC has advised before, investors are often lured to buy promissory notes “by the promise of a high, fixed-rate return – up to fifteen or twenty percent – with a very low level of risk.” The seemingly “guaranteed” nature of such notes often lead investors not to perform due diligence or ask “tough questions” of the sellers.

If you have been the victim of a promissory note fraud or similar scam, it is important you seek out independent legal advice from an experienced Florida securities fraud Contact Gregory Tendrich, P.A., in Boca Raton for a free initial consultation.