U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20364 / November 15, 2007
SEC v. James Thomas Webb, et al., Civil Action No. 07-61655, (DMM) (S.D. Fla. filed November 15, 2007)
SEC Files Civil Action and Obtains Asset Freeze in Connection With Widespread Real Estate-Based Offering Fraud
The Securities and Exchange Commission announced that today it filed a civil action in the United States District Court for the Southern District of Florida against James Thomas Webb and several companies that he owns and controls alleging that they engaged in a real estate-based fraudulent investment scheme that raised at least $8.4 million from more than 80 investors. In its filing, the Commission sought, on an emergency basis, a court order freezing the defendants' and relief defendants' assets during the pendency of the case and an order requiring the defendants and relief defendants to provide a verified accounting for, among other things, the receipt and disbursement of all investor funds. The court entered the emergency Order today granting this relief and set an initial hearing date of November 26, 2007.
The Commission's complaint alleges that, since 2002, Webb and companies he owns and controls, CitiRise Redevelopment, LLC (a North Carolina limited liability company), CitiRise Redevelopment, LLC (a Florida limited liability company) (collectively, "Citirise"), Progressive Redevelopment, LLC ("Progressive"), and Alpine Properties, LLC ("Alpine"), solicited investors to invest in a real estate scheme. According to the complaint, investors typically were asked to invest a minimum of $40,000 in the investment contracts. The Commission alleges that Webb and his companies falsely represented to investors that, in exchange for their investment, the defendants would generate substantial investment returns through the purchase, renovation and resale of "distressed" residential real estate in various locations including North Carolina, Virginia, Missouri and Tennessee. Instead, according to the complaint, Webb routinely used investor funds for his own purposes, including to fund his personal bank accounts and to pay for personal expenses, such as leases on exotic cars and recreation travel. The Commission's complaint also names as relief defendants Webb's wife, Sharon Sloan-Webb, and two other entities owned or controlled by Webb and/or his wife, Majestic Redevelopment, LLC and Webb Builders LLC. According to the complaint, the relief defendants controlled bank accounts that received investors' funds.
The complaint further alleges that defendants commingled investor funds and misrepresented that: (1) investors with Alpine, between 2002 and 2004, would receive monthly or bi-monthly returns, ranging from 20% to 114% per year, even though these returns were not paid as promised; (2) investors with CitiRise and Progressive, from approximately mid-2004, would receive substantial returns of at least 12.5% per transaction, with the prospect of multiple transactions per year, when (i) Webb, CitiRise and Progressive had no reasonable basis for stating that they could generate such returns, (ii) Webb, individually and through Alpine, had a history of defaulting on similarly promised returns, and (iii) in fact, such returns were not paid. According to the complaint, the defendants also misrepresented that each investor's money would be used for purchasing, refurbishing, and developing the property named in the investment contract, when in reality money was not used to improve the properties as promised. Moreover, the Commission alleges that, since at least mid-2004, the defendants falsely represented that each investment was, in form or in substance, an "all encompassing" or "turn-key" investment, such that investors understood their initial investment would cover the entirety of the projected costs and efforts of the transaction; in reality, Webb failed to complete property renovations and failed to sell or manage the properties as promised, leaving investors responsible for various ownership costs and to their own devices to try to sell unrenovated properties.
The Commission's complaint alleges that the defendants violated the antifraud provisions of the federal securities laws, specifically Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5. The complaint also alleges that the defendants violated the securities registration provisions of the federal securities laws, specifically Sections 5(a) and 5(c) of the Securities Act. In addition to emergency relief, the Commission's complaint seeks a judgment permanently enjoining the defendants from violating these provisions of the securities laws, disgorgement of ill-gotten gains with prejudgment interest, and civil penalties. The Commission also seeks from each relief defendant disgorgement off ill-gotten gains with prejudgment interest.