Real estate investment companies charged over $135m fraud scheme

Two individuals and two companies have been charged by the SEC with securities law violations over allegations that they ran a fraudulent $135 million real estate investment scheme.

The SEC filed an emergency action against Jerome Cohen and Shaun Cohen and their companies, Equitybuild and Equitybuild Finance, for alleged violations of antifraud and registration rules. The complaint also seeks injunctions against future violations, disgorgement of the defendants' ill-gotten gains, and civil penalties.

The SEC alleged that since 2010, the defendants have sold promissory notes to at least 900 investors in relation to real estate located primarily on Chicago's South Side. They allegedly raised the funds by falsely promising safe investments fully secured by income-producing real estate.

Contrary to their representations, the real estate did not earn enough to pay the double-digit returns promised to investors. Also, the defendants took 15% to 30% of investors' funds as undisclosed fees. As a result, the defendants had to raise funds from new investors to pay earlier investors.

The SEC’s complaint also claims that the defendants disclosed to earlier investors that Equitybuild and Equitybuild Finance are in financial distress and cannot make payments to investors. However, the defendants continue to solicit new investors for various real estate funds without disclosing the companies’ financial condition.

Following the filing of the complaint, a temporary restraining order has already been issued to stop the defendants from raising additional funds from investors. The SEC also obtained an order appointing a receiver to secure the real estate and other assets obtained with investor proceeds for the benefit of the defrauded investors.