The Securities and Exchange Commission today announced that it has obtained an order freezing the assets of Chicago D&P, Inc., a purported real estate company based in Emeryville, California (with offices in Reno, Nevada) that has raised millions of dollars from hundreds of investors nationwide since 2001 (including over $6 million in the last six months alone). According to the Commission, the company lured investors into a fraudulent Ponzi scheme by guaranteeing profits of over 36% per year, and at times promising to double investors' money within a year.
The Commission's complaint, filed in federal district court in San Francisco, alleges that Chicago D&P fraudulently represented that it would use investor funds to acquire real estate that would generate "safe" and "phenomenal" returns. Instead, the company's founder and president, 57-year-old Emeryville, California resident Patricia "Pat" Morgen, diverted hundreds of thousands of dollars to personal use. According to the Commission's complaint, the defendants fooled investors into thinking the investment was profitable by making regular payments of supposed investment returns; in actuality, the money came from new investors.
An order issued by Judge Charles R. Breyer Tuesday morning freezes all funds and assets controlled by Chicago D&P and Morgen, as well as those of Morgen's 27-year-old son Shalom Gibson, of Berkeley, California, who is alleged to have controlled various bank accounts into which Morgen siphoned investor funds. The Commission reported to the court that, immediately after receiving subpoenas from the Commission over the weekend, Gibson and Morgen attempted to withdraw $300,000 of investors' funds in cash and cashier's checks, a move blocked by the court order.
Based on the evidence presented by the Commission, the Court issued an order temporarily freezing all of Chicago D&P's, Morgen's, and Gibson's funds and providing other emergency relief. The Commission's complaint charges the defendants with violating the antifraud and registration provisions of the federal securities laws, specifically Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. The Complaint seeks permanent injunctions prohibiting future violations of the securities laws, disgorgement, and civil penalties. Also named as a relief defendant is Realtopia, Inc., an entity controlled by Gibson into which he allegedly diverted investor funds.
