Man Allegedly Defrauded Elderly Churchgoers So He Could Buy Some Property For His Office Trailer
Another tip: If some guy encourages you to invest in his one-man distressed real estate fund returning 8-10% while warning you that the stock market is too risky... Run. Far away.
If you're nostalgic for the financial crisis, boy does the SEC have the fraud complaint for you.
The Commission alleges that David Fleet's company, Cornerstone, fraudulently sold $16.75 million worth of unsecured notes, mostly to elderly retirees (some of which were "advertised... in one or more church-affiliated publications in the late 1990s"), for his distressed real estate business between 1997 and 2010. The vast majority were sold between 2006 and 2010.
As you may have guessed, 2006 through 2010 wasn't a great time to be in the real estate business, and things went south. Instead of letting his investors know, the SEC says Fleet borrowed more and more, while continuing to maintain that the business wasn't reliant on bank financing, but was still profitable.
He also, meanwhile, dipped his hand into the cookie jar, borrowing money from the company to buy real estate for himself, and transferring properties from the company to his own name for free.
Then, there's this move:
In 2002, Fleet caused Cornerstone to transfer to him a parcel of real property for no consideration. Fleet used the premises for Cornerstone's office after he placed a trailer on the land, and, upon information and belief, Fleet charged Cornerstone $1,500 per month in rent for the premises between 2002 through April 2010, and $2,500 per month between May 2010 until the Chapter 11 Trustee was appointed in January 2014.
Being your own company's landlord seems like a great deal if you can get it.
According to the complaint, "beginning in July 2009, when Cornerstone's business was deteriorating, Fleet sought to raise money to pay investor interest by investing approximately $6 million of Cornerstone's funds in the stock market and engaging in frequent options trading that resulted in losses of at least $3 million."
Oops. After that, Cornerstone reduced interest payments to 1% (from 8-10%), and prohibited investors from withdrawing their principal. Eventually the company filed for bankruptcy, which led to a bankruptcy trustee being appointed, which presumably led to having the SEC come knocking.
(H/t Josh Brown)