SEC Alleges Real Estate Partners, Inc. is a Ponzi
The Securities and Exchange Commission ("Commission") on Thursday, September 6, 2007, filed civil securities fraud charges against a real estate company, its president, seven offerings, two boiler-room operators, and four salesmen for conducting a fraudulent $50 million real estate investment scheme.
The Commission's complaint names as defendants Real Estate Partners, Inc. ("REP"), based in Irvine, Calif.; the seven funds REP set up for the real estate investments; REP's president, Dawson Davenport, age 51, of Lake Forest, Calif.; boiler room operators Michael P. Owens, age 43, of Newport Coast, Calif., and Donald G. Ryan, age 42, of Irvine, Calif,; and salesmen Richard McGill, age 58, of Laguna Niguel, Calif., William L. Sanders, age 56, of Norco, Calif., Michael Tuchman, age 38, of Irvine, Calif., and Danny Rayburn, age 47, of Westminster, Calif.
The Commission's complaint, filed in U.S. District Court in Orange County, alleges that, between January 2003 and August 2006, the defendants raised $50 million from over 1600 investors nationwide by selling security interests in a series of seven offerings. The Commission's complaint alleges that REP, its related funds, Davenport, Owens, and Ryan made several key misrepresentations to investors in the course of the fund offerings. First, the complaint alleges that these defendants misrepresented how REP would use investor funds, failing to disclose to investors that they spent over $26 million, or 52% of the money raised, on commissions to salespeople, including $10.9 million to two companies controlled by Owens and $3 million to a company controlled by Ryan.
The complaint further alleges that REP was running a Ponzi-like scheme. Specifically, the complaint alleges that REP paid investors annual dividends using money obtained from other investors. The complaint also alleges that the defendants falsely claimed that Coldwell Banker was associated with the funds, when, in actuality, Coldwell Banker had nothing to do with the fund offerings. Finally, the complaint alleges that the defendants enticed investors with baseless promises of high rates of return on their investments, and dangled the unlikely possibility of conducting a public offering by converting the funds and REP into a publicly-traded real estate investment trust.
