The Securities and Exchange Commission (SEC) has charged an Oak Beach, New York-based real estate funds promoter and the former president of a broker/dealer firm in Smithtown, New York for “orchestrating a multi-million dollar real estate investment scheme.” The SEC also charged two brokers at the firm with selling unregistered securities by means of “free lunch” seminars they used to coax elderly investors into making the risky investments.
SEC Chairman Mary L. Schapiro announced the enforcement action during remarks she made at a forum in Washington D.C. sponsored by AARP and the National Consumers League, noting that the SEC has brought nearly 70 enforcement actions during the past three years against fraudsters targeting elderly investors.
According to the SEC’s complaint in this case, the investment scheme collected nearly $12 million from approximately 90 investors while the promoter made numerous misrepresentations – including that the return was more than 50% on the sale of some properties in which they were investing. According to the announcement, the SEC also alleged that the real estate funds promoter, Charles C. Slowey, Jr., misappropriated more than $1 million of investor funds in such ways as charging excessive management fees and taking out an interest-free personal loan to purchase his own home.
“We allege that these securities professionals handed out free lunches to senior investors to win their trust and sell them risky, unregistered securities that eventually lost most of their value,” said Chairman Schapiro.
George S. Canellos, Director of the SEC’s New York Regional Office, added, “Although advertised as educational workshops, so-called free lunch seminars are very often sales presentations in disguise. These men used these supposed educational seminars to entice retirees with misrepresentations and convince them to invest in risky real estate ventures. And while those ventures were losing money, Slowey helped himself to investor funds to buy real estate of his own.”
The SEC charged four entities involved in the scheme; Endeavor Partners LLC and Endeavor Capital Management Group LLC, both of which are controlled by Slowey, acted as the managing members of all four real estate investment funds involved, according to the SEC. The broker-dealer firm Advanced Planning Securities, Inc. (APS) sold the Endeavor Funds through its agents. Oldham Harris, Inc. (OHI) is a Kenosha, Wisconsin-based retirement advisory business through which two of the brokers provided their brokerage services to APS.
The three brokers at APS charged by the SEC are Edward D. Puttick, Sr., Gregory L. Oldham and Glenn R. Harris. Puttick was the firm's former owner and president.
According to the SEC's complaint, Oldham, Harris, and OHI solicited investors by means of invitations to free lunch or dinner "seminars" at restaurants. The SEC said that on several occasions, Slowey joined Oldham and Harris at the gatherings to help them make sales of Endeavor Securities to potential investors at the seminars or in meetings at the OHI office scheduled shortly afterwards. Many of the investors to whom Oldham, Harris, and OHI sold these investments were elderly and of limited means, and few had previously invested in private placement securities or securities based on distressed or subprime mortgages, according to the SEC.
The SEC alleges that when the funds began to have increasing financial difficulties, Slowey continued to make false statements to investors. The SEC’s complaint alleges that Puttick and APS failed to conduct sufficient due diligence into the private placement securities they were selling and failed to resolve what it described as “numerous red flags” concerning Slowey and the funds. “As a result, they violated the implicit representation that all brokers make to their customers that there is an adequate basis for recommending an investment,” the SEC said. Puttick and APS also failed to disclose to investors their lack of due diligence.
The SEC's complaint charges each of the defendants with violations of Sections 5(a) and 5(c) of the Securities Act of 1933, as well as charging Slowey, Endeavor Partners and Endeavor Capital, Puttick and APS with violations of Section 17(a) of the Securities Act, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC's complaint seeks a final judgment permanently enjoining the defendants (except APS) from future violations of the above provisions of the federal securities laws, ordering them to disgorge their ill-gotten gains plus prejudgment interest on a joint and several basis, and ordering them to pay financial penalties.