U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20926 / March 5, 2009
Securities and Exchange Commission v. Diversified Lending Group, Inc., et al., United States District Court for the Central District of California, Civil Action No. 2:09-cv-01533-R-JTL
SEC OBTAINS EMERGENCY ASSET FREEZE TO HALT MULTI-MILLION DOLLAR REAL ESTATE INVESTMENT FRAUD
On March 4, 2009, the Securities and Exchange Commission filed a complaint in the United States District Court for the Central District of California against Los Angeles-based Diversified Lending Group (DLG), Applied Equities, Inc. (AEI), and their principal, Bruce Friedman. The SEC alleges that DLG, AEI, and Friedman are perpetrating an ongoing $216 million real estate investment fraud. The court entered an order halting the alleged fraud and freezing the assets of DLG, AEI, and Friedman.
The SEC's complaint alleges that DLG, AEI, and Friedman raised at least $216 million from hundreds of investors nationwide, many of whom are senior citizens, by promising guaranteed high returns through real estate-related investments. Instead, the complaint alleges, Friedman diverted substantial investor money to ventures unrelated to real estate, and also misappropriated at least $17 million to support his lavish lifestyle, including purchases of a luxury home, cars, vacations, jewelry, and designer clothing for himself and an alleged girlfriend, who is named as a relief defendant.
The SEC's complaint charges Friedman and his companies with selling securities in the form of one- or five-year "Secured Investment Notes," representing that DLG pools investor money and invests it 70 to 80 percent in real estate property and 20 to 30 percent in mortgage lending. Once investors invested in the Notes, defendants continued to represent to them that their money was being used as represented, that DLG's investments were profitable, that their money was safe, and that returns of either 9 percent or 12 percent were guaranteed. In fact, as alleged in the complaint, Friedman and his companies did not invest DLG investor proceeds as represented. Instead, they diverted a substantial amount of investor money to undisclosed business ventures unrelated to real property or mortgage lending, including Friedman's charitable foundation and businesses operated by affiliates and Friedman's family members and friends. Friedman and his companies only recently changed their written disclosure to mention these additional business ventures to DLG investors, even though DLG investors had financed them for years. Friedman also misappropriated substantial investor money for his own personal purposes.
In its lawsuit, the SEC obtained an order (1) freezing the assets of DLG, AEI, Friedman, and the relief defendant, Tina Placourakis; (2) appointing a temporary receiver over DLG, AEI and their affiliates; (3) preventing the destruction of documents; (4) granting expedited discovery; (5) requiring accountings from DLG, AEI and Friedman; and (6) temporarily enjoining DLG, AEI, and Friedman from future violations of Section 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 SEC also seeks preliminary and permanent injunctions, disgorgement, and civil penalties against DLG, AEI and Friedman and disgorgement from Placourakis. A hearing on whether a preliminary injunction should be issued against the defendants and whether a permanent receiver should be appointed is scheduled for March 10, 2009 at 10:00 a.m.
The SEC acknowledges the assistance of the Arkansas Securities Department, the California Department of Corporations, the Michigan Office of Financial and Insurance Regulation, and the Financial Industry Regulatory Authority (FINRA).