SEC Charges Investor Relations Professional for Role in Offering Fraud
July 1, 2020
File No. 3-19848
July 1, 2020 - The Securities and Exchange Commission filed settled fraud charges against David Rumsey, of Fairport, New York, for making and disseminating materially false and misleading statements to investors in a series of real estate investment funds, which were the subject of a prior SEC emergency antifraud action.
According to the SEC's order, Rumsey, while working in an investor relations role, assisted Robert C. Morgan, a residential and commercial real estate developer, in setting up, structuring, and raising a series of real estate investment funds, which generated more than $80 million from primarily retail investors between 2013 and 2018. The SEC's order finds that Rumsey told investors that these private funds would use investor money to make unsecured loans to entities affiliated with and owned by Morgan so that these entities could either operate existing properties or acquire new properties. Rumsey further told investors that they would be paid a target return of 11% using the proceeds of these loans. The order finds that Rumsey knew or should have known, however, that, beginning in early 2016, Morgan used money from new investors to make payments to old investors by repaying certain loans made by earlier private funds. Nevertheless, according to the order, Rumsey continued to tell investors that the loans themselves had always been sufficient to fund the payments to investors.
The order finds that Rumsey violated the antifraud provisions of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933. Without admitting or denying the findings, Rumsey agreed to a cease-and-desist order and to pay a civil penalty of $80,000.
The SEC's investigation was conducted by Joshua I. Brodsky and Daniel Nigro of the Complex Financial Instruments Unit and Lee A. Greenwood and Kerri L. Palen of the New York Regional Office, with assistance from Neal Jacobson, Alexander Vasilescu, and Alistaire Bambach. The investigation was supervised by Osman Nawaz and Daniel Michael of the Complex Financial Instruments Unit.