It was a real estate fraud action that caught my eye, but the victims that kept me reading. The Securities and Exchange Commission filed charges against Paul Garcia and his fund management company, Caliber Capital, for defrauding investors.
Since it was a real estate fraud, it caught my eye. But I didn’t have to dive into the murky waters of what is a security and what isn’t a security. Garcia is alleged to be selling interests in a fund and then not using the money as he said he would. I don’t see any argument that passive interests in an investment fund could be anything other than securities.
Mr. Garcia enticed investors to invest in a golf course purchase and shuffled money to keep things going. Things did not go well and Caliber Partnership filed for bankruptcy in January 2016. The lender foreclosed and the investors are likely left with no assets from the partnership. Even with the underlying asset being real estate, it does not change the nature of the interests.
What caught my eye in the case was the SEC inclusion of one investor in particular in the press release and the complaint:
“The investors included an eighty two-year-old who invested $250,000 in Caliber.”
This may be a common tactic for the SEC to gain sympathy for the investors and to paint the alleged fraudster as being particularly sinister.
I went back to the SEC’s 2017 priorities. One of the priorities for examinations is senior investors and the issues around them. I expect we may see more SEC press releases mentioning the little old lady from Pasadena who got bilking by a fraudster.
If your investors include that little old lady from Pasadena, the SEC is going to use that fact.
Sources:
- SEC Charges California Man in Fraudulent Real Estate Investment Scheme
- SEC Complaint against Paul Garcia, Richard Woods and Caliber Capital
- SEC Accuses Newport Beach Man of Fraud in Golf Course Deal
- SEC’s 2017 Exam Priorities