U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 22853 / October 23, 2013
Securities and Exchange Commission v. True North Finance Corporation, f/k/a CS Financing Corporation, et al., Civil Action No. 10-3995-DWF/JJK (D. Minn.)
SEC Obtains Jury Verdict in Its Favor Against Minneapolis Attorney, Real Estate Finance Fund and Fund Manager On Fraud Claims
The Securities and Exchange Commission announced today that, on October 22, 2013, following a five-week trial, a jury in federal district court in St. Paul, Minnesota, returned a verdict against Todd A. Duckson, a Minneapolis, Minnesota attorney, Capital Solutions Monthly Income Fund, LP, a Minneapolis-based real estate lending fund (the "Fund"), and Transactional Finance Fund Management LLC, a company owned by Duckson that became the fund's investment advisor in November 2008. The Commission's complaint, which was filed in September 2010, alleged that the defendants engaged in securities fraud in connection with their offer and sale of interests in the Fund.
The complaint alleged that, from approximately March 2008 through December 2009, the Fund raised $21.6 million from investors in a series of unregistered offerings. During most of the period of the Fund's existence, it made "mezzanine loans" - or loans subordinate to more senior loans - to a single borrower. That borrower encountered financial problems in 2007 and, by May 2008, had defaulted on its obligations to the Fund. As a result, the Fund had no meaningful income-producing assets. The complaint alleged that in written documents provided to investors between March 2008 and late 2009, the Defendants made materially false and misleading statements that effectively hid the Fund's deteriorating financial condition. The complaint also alleged that the Fund would use proceeds raised in offerings primarily to make real estate loans and other investments, when in fact the Fund needed to use most of the proceeds to pay senior lenders on properties the Fund had acquired and to make interest payments to existing investors. Duckson played a key role in drafting the written documents provided to investors, first as the attorney for the Fund and, in and after November 2008, as the Fund's manager.
At the conclusion of a five-week trial, the jury returned a verdict for the Commission and against all three Defendants. In particular, the jury found in favor of the Commission on its claims that Duckson and the Fund violated 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, that Duckson aided and abetted the Fund's violation of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, and that Transactional Finance Fund Management LLC violated Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. Finally, the jury found in favor of Transactional Finance Fund Management LLC on the Commission's claim that it violated Section 17(a) of the Securities Act. The jury specifically found that Duckson and the Fund acted with knowledge in committing the violations described above.
The trial team from the Commission's Chicago Regional Office consisted of trial attorneys Eric M. Phillips, Daniel J. Hayes, Benjamin J. Hanauer, attorney Marlene Key-Patterson and paralegal Terri Roberts.