SEC Files Another Offering Fraud Action
Offering fraud actions are a key staple not just for the SEC or criminal prosecutors as in the post earlier this week, but for law enforcement. The variety of schemes seems to be endless. The worst part, however, is that no matter how many warnings are given, or investor education program are conducted, investors who typically can ill-afford to lose their investment funds virtually line-up to give their money to fraudsters. The offering fraud action filed this week by the Commission is yet another example of this type of case.
SEC v. The Legacy Group, Inc., Civil Action No. 1:21-cv-01404 (D. Col. Filed May 24, 2021) is a real estate based offering fraud case. Named as defendants are the firm, Colorado Ventures I, LLC, Radiant Holdings, LLC, Randy R. King, Matthew B. King and Adnrea S. Trout. Legacy Group is owned and controlled by Randy and Mathew King, father and son; Andrea Trout is a vice president of the firm. Defendant Colorado Ventures and Radiant Holdings are also controlled by Randy and Mathew King.
Legacy is a privately owned Colorado based investment Group. Its members learned how to create “deal sponsors” for real estate transactions from the Seminar Group of California. The group taught the Legacy members and others how to draw investors in with a small series of steps, each of which moved the person closer to a large deal and more wealth, all in exchange for more cash. Legacy Group also focused on what it called “gap financing,” that is, finding investors for the gap in real estate financing between what the lender put up and the investor had available for the deal.
Legacy and the other Defendants put their skills to use over a five-year period, beginning in 2014. Prospective investors were solicited to raise money for gap loans tied to specific projects. Potential investors were mailed a “Lending Opportunity Profile,” which was called a “Platinum Opportunity Profile.” The Profile contained a short description of the property, a chart regarding the values and listed the terms of the deal.
Interested investors were given an additional presentation and eventually executed a note which is an investment contract. The deals were supposed to last for varying periods of time ranging from a few days to several months. Investors were also told that the funds would be allocated to specific property pledged as collateral on the note and for other purposes. Investors were also furnished with information regarding the existing liability and details regarding the compensation of Legacy. The representations were false.
By 2018 many of the Legacy projects failed. Father and Son King raised additional funds through Colorado Ventures and Radiant. They misappropriated portions of the investor funds. Overall, about $29 million was raised from about 200 investors. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and each subsection of 17(a) and Exchange Act Section 10(b). Each Defendant resolved the charges, consenting to the entry of a permanent injunction based on the Sections cited in the complaint. See Lit. Rel. No. 25097 (May 24, 2021). In addition, Randy King will pay $174,318 in disgorgement, $6,056 in prejudgment interest and a penalty of $195,000; Matthew King will pay disgorgement of $89,434 plus $9,097 in prejudgment interest and a penalty of $150,000; Ms. Trout will pay $23,509 in disgorgement, $1,637 in prejudgment interest and a civil penalty of $159,000; and Legacy will pay disgorgement of $416,859, prejudgment interest of $1,637 and a civil penalty of $125,000.