Ettro Capital developed real estate. It’s principal, Peter Ettro must have thought that using a private fund to raise some of the capital to finance the investments would be a good idea. He raised over $4 million from 13 investors in ECM Opportunity Fund. The problem is that he made some big fundraising mistakes.
The first category of mistakes was lying to prospective investors.
From April through October 2017, Ettro claimed that the Fund’s net return since inception ranged from as low as 26.4% to as high as 56%, its blended net return since inception exceeded 20%, its realized yield was 18.67%, and its total return was 43.67%. In truth, the fund didn’t have any returns until November 2017 and it wasn’t that good.
Ettro send another investor a description of the projects the fund had in its portfolio. It listed two completed projects that had gained over $900,000 and six projects in progress. It left out a third completed project that had lost over $1.1 million.
Ettro also inflated the size of the portfolio, claiming to invested in over $50 million of real estate projects. The truth was closer to $1.5 million.
The second category of problems was engaging in general solicitation.
Ettro had filed a Form D for the fundraising and checked the “Rule 506(b)” box. That makes it a private offering and prohibits general solicitation and general advertising. Ettro made the fundraising material available on a website. THat included target returns and investor testimonials that all visitors could access.
Ettro tried to fix the problem by filing an amendment to Form D, switching to the “Rule 506(c)” box. That public-private offering allows general solicitation. The big requirement is that you have to take steps to verify the accredited investor status of your investors. Ettro had not done so. At least one investor was not accredited.
Ettro voluntarily returned the management fees back to the fund investors and has to pay a $60,000 fine to the SEC.
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