The feds have cracked down on what they describe as a $48 million real estate Ponzi scheme operating out of Nevada.
But a lawyer for the targets of the investigation spearheaded by the Securities and Exchange Commission (SEC) says his clients have done nothing wrong.
A U.S. District Judge in Nevada has granted the SECs request and issued a temporary restraining order that has frozen the assets and activities of the company and individuals involved in the alleged scheme, according to SEC documents.
Named in the complaint were Global Express Securities, a broker-dealer in Las Vegas; the company’s owner, Connie Farris, 59, of Henderson, Nev.; and company president Dawn Reese, 45, also of Las Vegas.
The SEC alleges that since late 2001, the defendants used the promise of 12% returns to convince about 600 people from across the country to purchase interests in a real estate investment fund.
Investors were told that money would be pooled and then invested in mortgage loans and trust deeds that would pay regular monthly returns to investors, the SEC said. At least $48 million has been raised.
And some investors were paid returns of up to 12% on their money.
But “contrary to the defendants’ representations the (company) is not generating sufficient interest income to pay the monthly distributions it is making to investors and, in fact, is operating as a Ponzi-like investment scheme,” the SEC said.
“The defendants are funding the monthly investor distributions with cash from new investors as well as with capital contributions from Farris” and Global Express Capital Mortgage, a unit of her company, the agency alleges.
The mortgage unit was placed in conservatorship by Nevada earlier this year.
Farris is also accused of filing false quarterly SEC reports “that misrepresent the financial condition” of the investment fund.
A receiver has been appointed by the court to determine how much money the investment fund still has under its control. The judge also prohibited the destruction of any documents and ordered a full accounting of all the assets controlled by Farris and her companies.
Lawyer Charles Clawson, who represents Farris and Reese, could not be reached to comment.
But he told the Dow Jones financial news service that his clients have fully complied with all state and federal securities regulations.
“We deny all wrongdoing charges and will defend the case vigorously,” Clawson told Dow Jones.
The judge has set a Dec. 17 hearing on the SEC’s motion for a preliminary injunction and the appointment of a permanent receiver. The agency is also seeking a final judgment that would assess civil penalties against the defendants and require them to surrender all “ill-gotten gains” made in the scheme.
“The (SEC) also seeks an order prohibiting Farris from acting as an officer or director of any public company,” the agency said.
The Nevada Secretary of State Securities Division assisted in the investigation.
