SEC Clamps Down on Real Estate Scammers

The Commission has frozen the assets of three men and their company
and one has been arrested as a result of its charges that they ripped off investors.
By Aaron Seward

A federal judge in Utah has sided with the SEC and issued a temporary restraining order and an asset freeze against the perpetrators of an alleged real estate scam.

According to the Commission’s complaint, Madison Real Estate Group, Richard Higgins, his son Brandon Higgins, and Allan Christensen illegally raised $15 million from 42 investors through fraudulent real estate investment interests. The Court also appointed a receiver to take control of their frozen assets.
The Commission said the trio and their firm sold limited partnership interests in apartment buildings that Madison purchased in Oklahoma and Texas. But in doing so, they made a slew of misrepresentations to investors about the nature of their business.

In phone sales pitches the SEC claims they told prospective investors that Madison Real Estate Group was a family-owned business with 30 years of experience in commercial real estate. They also allegedly said that the company pulled in $250,000 a month. The SEC said that both assertions were bald-faced lies.

The defendants also allegedly told investors that they would receive 1% monthly returns from their investments. Purchasing apartment buildings at below-market values, renovating them, and then selling them for a profit would provide the profit, they claimed. Once the apartment buildings were sold, within one to two years, the defendants promised investors 30% returns, according to the SEC.

The complaint claims the apartment buildings purchased by Madison were actually bought at above-market value and that the returns paid to investors were made from newly invested funds, in classic Ponzi-scheme fashion.
The SEC also claims that the defendants failed to disclose certain material facts about the investments. For example, the regulator said that defendants failed to mention that Madison wasn’t making mortgage payments on its investment properties and that the company wasn’t paying contractors for renovations and materials. The unpaid contractor fees allegedly amounted to hundreds of thousands of dollars.

The buildings also operated at a loss as Higgins and Christensen received undisclosed management and referral fees plus commissions, according to the regulator. The defendants also allegedly used investor money to cover their personal expenses. The SEC said that the defendants didn’t tell investors about any of this.

Finally, the SEC said that the three men failed to disclose that Higgins had been enjoined in a prior Commission enforcement action, and moreover had been convicted in an action by the State of Utah for securities fraud. Higgins had been also disbarred by the State of Utah.
The SEC’s previous case against Higgins, filed in 1999, involved a prime bank scheme, in which Higgins and several associates sold unregistered financial instruments issued by international banks and promised high rates of returns. They lied extensively to investors in that case, as in the Madison scam, said the SEC. Among the lies Higgins and his associates told investors was that their money would be insured by Lloyds of London. That scheme raised $15 million, said the SEC.

After the filing of the SEC’s current complaint, authorities arrested Higgins for violating the injunctions placed upon him in the previous fraud cases.

CCH Wall Street