EquiAlt is in the business of snapping up distressed properties in Florida. That takes capital and it raised it through a series of funds through debt offerings. That seems like mismatched cash flow to me. You have to make interest payments on investments in real estate that are not generating cash flow. The SEC took an even more skeptical view and accused the firm of being a Ponzi Scheme and defrauding investors.
“The SEC’s filings present an inaccurate picture of Mr. Rybicki’s business dealings,” Washington D.C. attorney Stephen L. Cohen said in an email to the Tampa Bay Times. “We look forward to addressing these matters with the court.”
Since it was a real estate company it caught my attention, a found a few items that were worth exploring.
As with most alleged frauds, the SEC lists a bunch of luxury items by the alleged fraudsters. The EquiAlt’s principals apparently bought Ferraris, Porsches and a Rolls Royce. Plus expensive watches and private jet charters.
Lesson: Just assume that if the SEC shows up at your office and sees a Rolls Royce or a Ferrari out front, the SEC is going to be immediately suspicious.
The SEC got hung up on the use of “may” is the private placement documents. EquiAlt was is accused of using in-house employees and unlicensed external sales agents to to raise investor money. According to the SEC, they were ALWAYS paid commissions. The SEC is taking the position that the fundraising documents should not have said that the funds MAY pay commissions.
I hate that the SEC raises this issue. But it does.
Lesson: If you always pay some kind of fee, especially to an affiliate, make sure you use a more forceful term than “may.” Or I suppose you could find a time to forego the payment so that “may” is more accurate.
The last thing that caught my attention was a claim that the fund raising documents falsely stated that a certain individual was EquiAlt’s Chief Financial Officer when that person did not do so.
Lesson: Always make sure you get your firm’s personnel right in the fund-raising documents.
Sources:
