Father-Son Ponzi Scheme in Utah Busted
The Securities and Exchange Commission today charged a father and son in Utah with securities fraud for selling purported investments in their real estate business that turned out to be nothing more than a wide-scale $220 million Ponzi scheme.
The SEC’s investigation was conducted by Alison Okinaka, Scott Frost, Paul Feindt and Norm Korb in the Salt Lake Regional Office, with the assistance of the U.S. Attorney’s Office for the District of Utah, Federal Bureau of Investigation, and Internal Revenue Service. The litigation will be headed by Dan Wadley and Tom Melton.
The SEC alleges that Wendell A. Jacobson and his son Allen R. Jacobson operate from a base in Fountain Green, Utah, and offer investors the opportunity to invest in limited liability companies (LLCs) in order to share ownership of large apartment communities in eight states. The Jacobsons solicit investors personally and verbally, and appear to be using their memberships in the Church of Jesus Christ of Latter-Day Saints to make connections and win over the trust of prospective investors.
The SEC alleges that the Jacobsons represent that they buy apartment complexes with low occupancy rates at significantly discounted prices. Investors are said to share in the profits derived from rental income at the apartment complexes as well as the eventual sales. But in reality, the LLCs are suffering significant losses and the Jacobsons are merely pooling the money raised from investors into large bank accounts from which they are siphoning money to pay family expenses and the operating expenses of their various companies.
After filing its complaint in federal court in Salt Lake City, the SEC obtained an emergency court order freezing the assets of the Jacobsons and their companies.
According to the SEC’s complaint, the Jacobsons raised more than $220 million from approximately 225 investors through a complex web of entities under the umbrella of Management Solutions, Inc.
The SEC alleges that the Jacobsons falsely assure investors that the principal amount of their investment will be safe, and their funds will be used to acquire, rehabilitate, and manage certain identified properties.
Investors are promised annual returns ranging from 5 to 8 percent per year depending upon the particular apartment complexes pertaining to their LLC, with additional profits promised when the properties are sold. Wendell and Allen Jacobson tell investors that their funds are designated for a particular LLC. Wendell Jacobson has told investors that only one time has he ever lost money on a property, and on that occasion he covered the loss personally so that investor returns would not be reduced.
According to the SEC’s complaint, investor funds are never held and used exclusively to acquire, rehabilitate, and operate rental properties as represented by the Jacobsons. In fact, the LLCs are experiencing significant net losses.
Nevertheless, the LLCs continue to pay returns to investors, falsely leading those investors to believe their LLCs are operating at a profit. When investor funds are received, they are almost always transferred or pooled immediately in accounts of various Jacobson-owned entities, most commonly in the account of Thunder Bay Mortgage Company. Investor funds are then used for a variety of purposes that have not been disclosed to investors.
The SEC further alleges that on numerous occasions since Jan. 1, 2010, investors have been told that the property owned in their LLC has been sold, and that they have realized a profit on the sale. In fact, those properties were not sold, and the Jacobsons used the alleged “sales” as a means of shifting investors into and out of certain properties.
They have essentially been operating a shell game intended to raise additional funds from new or existing investors in order to meet the rapidly growing financial obligations of their operation.