If you are running a Ponzi scheme, don’t send a video to your investors that you are running a Ponzi scheme.
According to the Securities and Exchange Commission Complaint, EquityBuild was selling notes secured by real estate by promising safety and high returns. (Hopefully, you realize those things don’t go together.) In reality, EquityBuild was charging high fees to investors by valuing real estate well above cost and using new investor money to pay returns to older investors.
The wheels fell off earlier this year and EquityBuild finally told investors that there were issues.
According to the SEC complaint, Equitybuild emailed a video recording to investors telling them about the problems.
(a) states that Equitybuild’s properties are “negatively cash flowing,” (b) acknowledges that investor interest payments have stopped and that principal has not been returned, (c) discloses that Equitybuild had funded investor interest payments using “fee income” from later investors, but that fees charged to later investors could no longer satisfy the interest payments to earlier investors, (d) warns investors not to file lawsuits against Equitybuild, (e) states that investors will not receive payments until Equitybuild’s rental income exceeds its expenses, and (f) advises that Equitybuild was cutting staff down to a “skeleton crew” and would not be able to respond to investor inquiries.
Read (c) again.
I’ve not been able to get my hands on a copy to hear exactly what was said. But according to the SEC complaint, EquityBuild admitted to being a Ponzi Scheme.
EquityBuild and its principals are currently fighting the charges, so we will have to wait to hear their side of the story.
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