SEC Obtains Judgment Against Ex-Radio Host Who Ran Real Estate Ponzi Scheme
On July 17, the U.S. Securities and Exchange Commission obtained a civil judgment against two individuals who cheated investors and lenders out of nearly $7 million through a fraudulent real estate investment scheme. The SEC said the pair, together with a third person, “misappropriated millions of dollars raised from investors through the fraudulent sale of interests in two real estate investment funds.” None of the defendants contested the SEC’s civil charges.
SEC v. Alexander, et al.
Barbara Alexander was president of APS Funding, a company that managed two investment funds. These funds purported to raise money from investors, which in turn would be used to make fixed-rate, short-term loans for property development. The properties would also serve as collateral to guarantee the loans. Alexander used her syndicated radio program to promote investments in APS Funding, where she guaranteed annual returns of 12%.
In October 2010, the SEC filed a civil complaint in San Jose, California, federal court, accusing Alexander and two of her associates, Michael E. Swanson and Beth Piña, of using most of the money raised through APS Funding on themselves. They sent investors fraudulent statements to create the illusion of profits while using newly raised funds to pay off earlier investors—in other words, APS Funding was nothing more than a classic Ponzi scheme.
The day before the SEC filed its civil complaint, a federal grand jury in California indicted all three defendants on more than 40 counts of criminal securities fraud, mail fraud, wire fraud, money laundering and conspiracy. A jury convicted Alexander on 28 counts in February 2014. She is currently serving a nine-year prison sentence. She was further ordered to pay more than $6 million in restitution to her victims. Swanson, who served as APS Funding’s vice president, was similarly convicted on 28 counts in September 2013. He is now serving a prison sentence of just over three years and was ordered to pay over $2.8 million in restitution.
This still left the SEC’s civil complaint. Piña settled with the SEC last month, and neither Alexander nor Swanson filed any papers opposing the Commission’s motion for summary judgment against them. Accordingly, U.S. District Judge Lucy H. Koh entered partial summary judgment against both. Even if the defendants had opposed the SEC’s motion, Judge Koh said their criminal convictions barred them from contesting the civil securities fraud charges. In legal terms this is known as “collateral estoppel”; you cannot re-litigate a question already decided by another court. The judge therefore granted the SEC’s request to issue a permanent injunction, barring the defendants from violating securities laws in the future.
Judge Koh did, however, deny the SEC’s request for disgorgement. She noted this was redundant given the defendants were already ordered to pay disgorgement as part of their criminal sentences. But she ordered Alexander to pay an additional $300,000 civil penalty to the SEC, and Swanson to pay a similar fine of $150,000.
Need to Seek Your Own Relief?
Disgorgement is an important issue for victims of securities fraud, as it often represents their only opportunity to recover money stolen from them by unscrupulous individuals. But it is not always necessary for investors to wait upon the outcome of a criminal securities fraud trial. If you have been the victim of securities fraud and need advice on how to proceed, contact Boca Raton stockbroker attorney Gregory Tendrich today.