SEC Halts Alleged EquiAlt Ponzi Scheme: How do Investors Recover Their Losses?
On February 11, 2020, the United States Securities and Exchange Commission (“SEC”) filed a Complaint for injunctive relief to halt an alleged ongoing fraud conducted by EquiAlt LLC ("EquiAlt"), a private real estate investment company that controlled the business operations of EquiAlt and its four real estate investment funds: EquiAlt Fund, LLC ("Fund I"); EquiAlt Fund II, LLC ("Fund II"); EquiAlt Fund III ("Fund III"); and EA SIP, LLC ("EA SIP Fund") (collectively referred to as the “EquiAlt Funds”). Simultaneously, the SEC and filed an Emergency Motion to freeze all of the Defendant assets and appoint a Receiver to marshall all of the assets and take control of EquiAlt and the EquiAlt Funds. The Court entered an Order that granted the SEC’s request for Temporary Restraining Order and Asset Freeze and another Order Appointing a Receiver.
According to the SEC, beginning in 2011 and up until it filed suit, Defendants EquiAlt, Brian Davison ("Davison"), and Barry Rybicki ("Rybicki"), through fraudulent unregistered securities offerings, raised more than $170 million from over 1,100 investors nationwide. The Defendants were supposed to invest all of the investors’ money in the EquiAlt Funds by purchasing real estate in distressed markets throughout the United States. The managers of the EquiAlt Funds were supposed to manage the real estate, pay high rates of returns to investors, sell the real estate for a profit, and then liquidate the EquiAlt Funds. Instead, according to the SEC, EquiAlt, Davison, and Rybicki misappropriated millions in investor funds for their own personal use and benefit.
According to the SEC, the revenues generated by the EquiAlt Funds were insufficient to meet the interest rate obligations of the debentures sold to the investors. In addition, the SEC alleged Defendants Davison and Rybicki paid themselves millions from the EquiAlt Funds and spent it on automobiles, jewelry, and private jets. The insufficient cash flow due to operations and alleged misappropriation of funds supposedly led the Defendants to perpetrate the Ponzi Scheme fraud. As time went by, the Defendants allegedly sold more and more debentures and used the sales proceeds to pay the interest obligations to the earlier investors in the EquiAlt Funds.
The SEC further alleged the investments - unregistered securities in the form of debentures issued by four real estate investment funds managed by EquiAlt - were falsely touted to investors as "secure," "safe," "low risk," and "conservative." The Defendants paid significant sales commissions to numerous unregistered sales agents who allegedly repeated the same misrepresentations and sold investments to unaccredited and unsophisticated investors in various states.
Sadly, the combined assets of EquiAlt and its three active funds (Fund I, Fund II, and the EA SIP Fund) are insufficient to repay the principal and interest owed to investors. By December 2020, investors in these three funds will be owed approximately $167 million in principal and interest. However, as of November 2019, the assets of EquiAlt, Fund I, Fund II, and the EA SIP Fund total only $6.8 million in cash and real property purportedly worth $145 million based upon EquiAlt’s own inflated valuation. Thus, the combined assets of the three active EquiAlt Funds are insufficient to pay investors the principal and interest owed to them at the end of this year.
The SEC suit has resulted in an Asset Freeze and appointment of a Receiver who has taken control of EquiAlt and all of the EquiAlt Funds. Since that appointment, the Receiver, in a letter to all investors, said he has stopped making any interest payments and will not return any principal invested in the EquiAlt Funds to investors while the suit is pending.
The length of time before any investor will see any of their money again is uncertain and will depend upon: 1) whether the SEC proves its case of fraud or the Defendants settle and relinquish all right to the assets of EquiAlt and the EquiAlt Funds; 2) the Court Orders a liquidation of EquiAlt and the EquiAlt Funds and all other assets marshalled by the Receiver from the Defendants; and 3) the time it takes the Receiver to liquidate the assets and distribute the proceeds. It is fair to say this process will take years to complete.
But one thing is certain, and that is investors will not receive back their entire investment due to the Defendants’ dissipation of assets and the Receiver’s fees and expenses, including attorney fees, to marshal the assets and liquidate them. And so, the investors in the EquiAlt Funds will need to take charge of their own case and hire their own attorneys to recover their losses from those who offered and sold the investment, such as attorneys, accountants, stockbrokers, insurance brokers and other salespersons.
Attorney Pearce has over 40 years of experience with private placement investment disputes and recovering money for investors lost in Ponzi Schemes. If you invested in any of the EquiAlt Funds, you may be able to recoup your losses through a FINRA arbitration proceeding. We are reviewing and accepting EquiAlt Fund cases on a contingency fee basis, meaning you do not pay any fees or expenses unless we are successful in recovering money for you in a court or arbitration proceeding or settlement. The cases we accept will be filed against FINRA registered broker-dealers for misrepresentation, omissions due to failed due diligence, unsuitable investment recommendations, and/or unauthorized private securities transactions otherwise known as “selling away” in a FINRA arbitration proceeding. We may also group investors in lawsuits to be filed with the Receiver or other counsel against attorneys, accountants, and other unlicensed salespersons who are not subject to mandatory arbitration.
Please complete the Contact Us form below for help recovering your EquiAlt Fund investment losses. Alternatively, call 1-800-SEC-ATTY (1-800-732-2889) or email us now and get your questions answered along with top notch representation in connection with your EquiAlt Funds private placement investments. If Attorney Pearce accepts your case there will be no attorney’s fee or expenses charged unless we recover funds for you by judgment, award or settlement.
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