SEC Files Another Offering Fraud Case
Offering fraud has long been a staple of SEC enforcement. SEC v. Baldwin, Civil Action No. 2:15-cv-00458 (D. UT. Filed June 25, 2015) is one such action, centered on the acquisition of two defaulted loans, collateralized by real estate. In one instance the loan was acquired and sold before the investors put up their cash. In the other investors were lured with a sham letter of intent to acquire the property.
Defendants in the action are Dwight Baldwin and Silverleaf Financial, LLC. The firm’s primary business was the acquisition of defaulted commercial loans collateralized by real property which could be sold at a profit. Mr. Baldwin controlled the firm.
In early 2010 Mr. Baldwin successfully bid on sixteen discounted commercial loans which were purchased under a June 29, 2010 agreement with a bank. To fund the purchase Mr. Baldwin contacted Atalaya Capital Management, LLC which had previously provided short term loans to acquire such properties. Atalaya funded a loan for the deposit. ACM Silverleaf Funding, LLC was created to facilitate the purchase. The purchase price was about $12.1 million. ACM Silverleaf paid a deposit of about $1.8 million.
One of the loans acquired by ACM Silverleaf was the Oviedo property loan. The purchase price for this loan was about $3.5 million. It was the largest in the group. Within days of the purchase, the loan was sold.
Despite the sale of the Oviedo property loan, Mr. Baldwin continued to solicit investors for funds to acquire the property. For example, in mid-July 2010 Mr. Baldwin contacted an investor, seeking funds for the acquisition. The investor put up $2 million. Those funds were wired to Silverleaf. In part the money was used to repay the down payment and in part it was deposited in a Merrill Lynch account controlled by Mr. Baldwin. After receiving the funds Mr. Baldwin provided the investor with optimistic updates on the Oviedo investment which was being managed by Silverleaf under an agreement executed at the time the property was sold.
In September 2011 Mr. Baldwin began taking steps to acquire the Trailhead note. He entered into an arrangement under which a prospective buyer who turned the deal down claiming the property was overpriced, gave him what was in essence a sham letter of intent to purchase it for about $33 million. Armed with these documents Mr. Baldwin solicited two investors who were convinced to put up a total of $6 million. Each was told that there was a buyer for the property which would soon be sold for a quick profit. In fact there was no buyer. The property remains unsold. The investors remain unpaid.
The complaint alleges violations of each subsection of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is pending. See Lit. Rel. No. 23299 (July 6, 2015).