U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 22537 / November 20, 2012
Securities and Exchange Commission v. Joel I. Wilson et al., Civil Action No. 12-cv-15062 (E.D. Mich., filed November 15, 2012)
SEC CHARGES MICHIGAN BUSINESSMAN DEFRAUDED INVESTORS IN REAL ESTATE INVESTMENT SCHEME
The Securities and Exchange Commission announced that it has obtained an emergency court order against a Bay City, Michigan-based real estate promoter, and that it has suspended trading in one of the promoter's companies, American Realty Funds Corporation.
According to the SEC's complaint, Joel I. Wilson defrauded investors who bought unregistered securities offered by his company, Diversified Group Partnership Management, LLC, and sold through his brokerage firm, W R Rice Financial Services, Inc. Wilson raised approximately $6.7 million from approximately 120 investors who bought Diversified Group's securities from September 2009 through October 2012, and used the funds to finance his business of buying, renovating, and selling houses in and around Bay City, the SEC alleged.
Although Wilson promised investors that he would invest their money in real estate that would yield returns of 9.9% per year, he used most of it to make unsecured loans to his real estate business, which did not generate enough income to repay the investors. Wilson also diverted $582,000 of investor money to pay personal expenses, including $75,000 he used to buy W R Rice Financial, $46,780 he spent on travel, and $35,000 for his wife's business. In addition, the SEC said Wilson used investors' money to pay for a sponsorship and tickets to the Saginaw Sting football team and to buy thousands of dollars worth of tickets to the Detroit Red Wings.
The SEC alleges that Wilson raised additional funds for his real estate business through stock sales for another of his companies, American Realty Funds Corporation, which trades on the OTC Bulletin Board under the symbol ANFDE. The complaint alleges that there were misrepresentations and omissions in some of the reports the company filed with the SEC, which Wilson signed, including that American Realty has failed to make loan payments and that its purportedly independent directors have undisclosed personal and business relationships with Wilson. American Realty is delinquent in filing its annual report on Form 10-K for the fiscal year ended June 30, 2012, which was due October 15, and its quarterly report on Form 10-Q for the quarter ended September 30, which was due on November 14. Because of the questions concerning the accuracy of publicly disseminated information in the company's public filings and financial statements, the SEC issued an administrative order suspending trading in American Realty stock until 11:59 p.m. EDT on November 29, 2012.
The SEC's complaint, filed on November 15, 2012 in the U.S. District Court for the Eastern District of Michigan, charges Wilson and Diversified Group with violations of the registration and antifraud provisions of the federal securities laws and American Realty with violations of the antifraud and reporting provisions of the federal securities laws. The Court granted the SEC's request for an order prohibiting the defendants from altering or destroying documents and an order granting the parties leave to conduct expedited discovery. The Court scheduled a hearing on the SEC's motions for an asset freeze and preliminary injunction for December 10, 2012, at 10:00 a.m. at the U.S. District courthouse located at 1000 Washington Ave. in Bay City, Michigan.
The SEC's investigation was conducted in the Chicago Regional Office by Tracy W. Lo, Ann M. Tushaus, and Felisha K. Clay and was supervised by Steven L. Klawans following a referral from the broker-dealer examination program of the Chicago Regional Office. John E. Birkenheier will litigate the case with assistance from Kristine Rodriguez and Lynette Nichols-Newman. The SEC thanks the Financial Industry Regulatory Authority (FINRA) and the State of Michigan's Office of Financial and Insurance Regulation for their assistance in this matter.