SEC Sues Real Estate Firm, Principals for Fraud
The US Securities and Exchange Commission sued The Companies , LLC and its principals, for offering fraud to unsuspecting investors, running more than two years.
The Companies, directly and through related companies and subsidiaries, purchases distressed real estate for investment. The complaint alleges that to raise money to purchase real estate, The Companies or its subsidiary, Alpha Real Estate Holdings, L.P., initiated four unregistered offerings of securities from January 2009 to June 2011.
Kristoffer A. Krohn, Stephen R. Earl, and former officer, Michael K. Krohn allegedly participated in the offerings by providing content for and approval of the private placement memoranda used to solicit investors and by directly offering the securities to investors.
The four offerings raised a total of approximately $11.9 million from approximately 169 investors. The PPMs contained material misrepresentations and omissions related to, among other things, the value of properties to be purchased or that were owned by the Companies or Alpha LP.
In addition to containing false representations, each of the four offerings relied on the exemption to registration under Regulation D, Rule 506. The offerings did not qualify for the Rule 506 exemption because Defendants solicited investors through general solicitation at meetings that were open to the public.
Kris Krohn, Mike Krohn, and Earl have settled the charges by paying civil monetary penalties of $75,000 each.
The SEC’s investigation was conducted by Cheryl Mori and Justin Sutherland; the litigation will be led by Dan Wadley and Tom Melton.