SEC Halts $50 Million Offering Fraud and Ponzi Scheme in Detroit Area
FOR IMMEDIATE RELEASE
Washington, D.C., July 28, 2009 — The Securities and Exchange Commission has obtained a court order to halt an alleged offering fraud and Ponzi scheme being conducted in the Detroit area by two individuals and two companies they control.
The SEC alleges that John J. Bravata of Brighton, Mich., and Richard J. Trabulsy of Northville, Mich., raised more than $50 million from at least 440 investors by offering them membership interests in a purported real estate investment fund with promised annual returns of 8 to 12 percent. However, not even half of the money raised was actually spent acquiring real estate, and Bravata and Trabulsy used money from new investors to make Ponzi-like payments to earlier investors. They also spent several million dollars of investor money on themselves and Bravata's family.
"Investors thought they were investing in a safe and profitable real estate investment fund, but instead their money was being used to pay for luxury homes, exotic vacations, and gambling debts of the defendants," said Merri Jo Gillette, Director of the SEC's Chicago Regional Office.
The SEC's complaint, filed in U.S. District Court for the Eastern District of Michigan, also charges Bravata's son, Antonio Bravata of Brighton, for selling the unregistered securities and acting as an unregistered broker.
At the SEC's request, the Honorable David M. Lawson issued a temporary restraining order and asset freeze against John Bravata, Trabulsy, and the companies they formed, own, and control: BBC Equities LLC and Bravata Financial Group, Inc. The court also froze the assets of Antonio Bravata as well as John Bravata's wife, Shari A. Bravata, who is named as a relief defendant in the case for the purposes of recovering investor funds.
The SEC's complaint alleges that the defendants told prospective investors that BBC Equities was a real estate investment fund and safe investment vehicle. However, the SEC alleges that no more than $20.7 million of the more than $50 million raised since May 2006 through the sale of membership interests in BBC Equities was actually spent on real estate acquisitions. Furthermore, this real estate portfolio is highly leveraged with mortgages and other liabilities exceeding $128 million, and BBC Equities has never been profitable.
The SEC alleges that John Bravata and Trabulsy spent approximately $7.2 million of investor money for their own personal benefit. In order to keep their scheme afloat, they paid out $11.3 million in Ponzi-like payments by using new investment proceeds to pay distributions to earlier investors. They also spent $14 million soliciting and marketing the offering in order to continue the scheme.
The SEC's complaint charges John Bravata, Trabulsy, and Bravata Financial with violating Sections 5 and 17(a) of the Securities Act of 1933 (Securities Act) and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. The complaint charges BBC Equities with violating Sections 5 and 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5. The complaint also charges Antonio Bravata with violating Section 5 of the Securities Act and Section 15(a) of the Exchange Act. The SEC's complaint seeks permanent injunctive relief and disgorgement from the all of the defendants, and financial penalties from John Bravata, Trabulsy, and Antonio Bravata. The SEC's complaint further seeks disgorgement of all investor funds or assets acquired with investor funds from relief defendant Shari Bravata.
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For more information, contact:
Merri Jo Gillette
Regional Director, SEC's Chicago Regional Office