U.S. Securities and Exchange Commission
Litigation Release No. 18001 / February 26, 2003
SECURITIES AND EXCHANGE COMMISSION v. MANOUCHER SARBAZ, PACIFIC GOLF COMMUNITY DEVELOPMENT LLC AND LEE ANDREW HILL, United States District Court for the Central District of California, Civil Action No. CV 03 1310 JSL (CTX).
SEC SUES LOS ANGELES DEVELOPER AND APPRAISER FOR FRAUD
The U.S. Securities and Exchange Commission yesterday sued a Los Angeles developer and an appraiser for fraud in the issuance of more than $83 million in municipal securities to support the Rancho Lucerne Master Planned Community, a planned real estate project in San Bernardino County, California. Named in the Commission's complaint, filed in the federal district court in Los Angeles, are Pacific Golf Community Development, LLC, a real estate development company; Manoucher Sarbaz, age 51, of Los Angeles, California, and Pacific Golf's managing director; and Lee Andrew Hill, age 59, of Little Rock, Arkansas, a real estate appraiser.
According to the Commission's complaint, from August 1996 to December 2000, Pacific Golf Community Development, Sarbaz, and Hill intentionally or recklessly misrepresented or omitted to disclose material facts about the Rancho Lucerne project in nine municipal securities offerings. In particular, Pacific Golf and Sarbaz are alleged to have repeatedly misrepresented facts indicating that the project would be completed quickly, that anticipated revenue from the project would be sufficient to repay investors when the securities matured, that in-tract financing for the project existed, that valuable land had been pledged as security for the municipal securities sold to investors, and that the developer had obtained contracts to sell developed lots to home-builders. Sarbaz also is alleged to have failed to disclose lawsuits and liens filed against the development. Hill is alleged to have provided appraisal reports in support of the municipal securities offerings in which he intentionally or recklessly misrepresented the value of the Rancho Lucerne land pledged as a security for the benefit of the investors who purchased the Rancho Lucerne offerings. According to the Commission, Hill opined that the Rancho Lucerne land was worth $28,000 per acre, or more, when, in reality, the land was worth several times less than that amount.
The Commission alleges in its complaint that Sarbaz, Pacific Golf Community Development, and Hill violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and also alleges that Hill aided and abetted violations Section 10(b) of Exchange Act and Rule 10b-5. The complaint seeks disgorgement of ill-gotten gains, civil penalties and injunctive relief against all defendants.
Yesterday's action is the second lawsuit brought by the Commission concerning the Rancho Lucerne municipal securities. On December 27, 2000, the Commission sued now-defunct Pacific Genesis Group, Inc., the underwriter of these securities, and its chairman, David Fitzgerald, to stop the last Rancho Lucerne offering. Following a trial, the district court found that Pacific Genesis Group and Fitzgerald had fraudulently misled investors about the existence of the developer's contracts with merchant home-builders for Rancho Lucerne, and ordered the return of all funds raised in the ninth offering. (To review the District Court's findings of fact and conclusions of law, see http://www.cand.uscourts.gov/cand/tentrule.nsf
After the district court trial, the California Department of Corporations revoked Pacific Genesis' business license and, in June 2001, the firm shut down. On March 20, 2002, pursuant to a settlement, the district court entered a final judgment against Pacific Genesis and Fitzgerald, entered permanent injunctions against each of them that barred them from selling more bonds on Rancho Lucerne by means of fraud and misrepresentation, and required Fitzgerald to pay $300,000 in disgorgement and civil penalties. Fitzgerald also consented to the entry by the Commission of an administrative order barring him from the brokerage industry, with a right to apply for readmission to the industry, in 5 years. See SEC v. Pacific Genesis Group, Inc. and David Fitzgerald, No. C-00-4802 CRB (N.D. Cal.) [Release No. 17432] (dated March 22, 2002).