Former Real Estate Agent Charged with Securities Fraud for Misreps and Misappropriation
The SEC commenced securities fraud charges against a private equity real estate firm and its principal for misleading investors and misappropriating funds. The principal, who controlled and directed all aspects of the offering, was a real estate agent with no securities experience or background. Nevertheless, he falsely claimed to have successfully managed two prior real estate funds. He also misrepresented the use of offering proceeds and then siphoned money out of the funds for his own purposes. The scheme unraveled when the SEC began an investigation and the auditor resigned. In addition to securities fraud charges, the SEC also asserts that the principal is jointly and severally liable as a control person under Section 20 of the Exchange Act.
The SEC has long been concerned about private equity real estate because of opaque fees and transactions and inexperienced operators. As investors hunt for yield, we expect more PERE offerings and enforcement actions.