U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21437 / March 4, 2010
Securities and Exchange Commission v. Kathleen S. Dobens, Charles T. Dobens, Joseph A. Roche, Silex Group, LLC, Preakness Apartments I & II, LLC, Cherry Hills Apartments of Forth Worth, LLC, and Clear River Partners, LLC, as Defendants, and East Coast Investment Solutions, LLC, The Dobens Company, LLC, Crosscreeks Apartments I and Crosscreeks Apartments II, LLC, as Relief Defendants, Civil Action No. 10-CA-10360-MLW (D. Mass. March 1, 2010)
SEC CHARGES MASSACHUSETTS-BASED OPERATORS OF REAL ESTATE INVESTMENT FRAUD
The Securities and Exchange Commission announced today that it filed an enforcement action on March 1, 2010 in federal district court in Massachusetts against three individuals and the four entities that they operate in connection with inter-related real estate investment frauds. The Commission's complaint alleges that Kathleen S. Dobens and Charles T. Dobens, husband and wife business partners from Duxbury, Massachusetts, together with another business partner, Joseph A. Roche of Braintree, Massachusetts, defrauded approximately 60 investors who invested approximately $3.5 million beginning as early as 2007.
The Commission's complaint alleges that the individual defendants established four entities through which they operated. These entities, which were each operated out of the Dobens' home and are each named as defendants in the case, are Silex Group, LLC, Preakness Apartments I & II, LLC, Cherry Hills Apartments of Fort Worth, LLC, and Clear River Partners, LLC.
The Commission's complaint alleges that in February 2009, the individual defendants created Silex to solicit investors' money with false promises of secured investments and guaranteed annual returns of 9% or 12%. According to the complaint, Silex and the individual defendants used a website and a series of other oral and written representations to solicit investments. The website claimed, among other things, that Silex owned over $20 million in real estate assets and would pool investors' money to invest in "multi-family housing assets." In reality, Silex never owned any real estate assets and the funds raised for Silex were diverted to repay an earlier Silex investor, for personal expenses of the individual defendants, and for expenses for other entities owned and controlled by the individual defendants (including three entities charged by the Commission as relief defendants: East Coast Investment Solutions, LLC; Dobens Company, LLC; and Crosscreeks Apartments II, LLC). The complaint also alleges that Silex commingled funds with relief defendant Crosscreeks Apartments I.
The Commission's complaint also alleges that the individual defendants operated earlier real estate investment frauds using the other entity defendants that they created. According to the complaint, during 2007 and 2008, the individual defendants, acting through Clear River Partners, solicited investors in Preakness Apartments, an entity that owned an apartment complex in Lexington, Kentucky, and Cherry Hills Apartments, an entity that owned an apartment complex in Forth Worth, Texas. The complaint alleges that investors in those entities were misled to believe that they stood to gain substantial profits. For example, according to the complaint, investors in Preakness Apartments were told that they would receive a yearly return of 9% on their investment, and investors in Cherry Hills Apartments were told that they would earn a 123% return in five years. In fact, according to the complaint, neither investment was profitable. The complaint alleges that Cherry Hills Apartments was foreclosed upon and auctioned off in January 2010, and that during that same month, defendant Roche was soliciting investors for additional funds just to keep Preakness Apartments afloat for the year, promising investors a premium if they put more money into Preakness Apartments.
The Commission's complaint alleges that defendants Kathleen S. Dobens, Charles T. Dobens, Joseph A. Roche, Silex Group, LLC, Preakness Apartments I & II, LLC, Cherry Hills Apartments of Fort Worth, LLC, and Clear River Partners, LLC, violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission seeks the entry of permanent injunctions, disgorgement of ill-gotten gains plus pre-judgment interest, and the imposition of civil monetary penalties against the defendants. The Commission also charged as relief defendants East Coast Investment Solutions, LLC, Dobens Company, LLC, Crosscreeks Apartments I, and Crosscreeks Apartments II, LLC, and seeks from them disgorgement plus prejudgment interest concerning investor funds that were diverted to them.
On March 3, 2010, the Honorable Mark L. Wolf of the United States District Court for the District of Massachusetts denied the Commission's request for preliminary relief against the parties. The court has not yet set a trial schedule.
See Also: SEC Complaint