U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23906 / August 11, 2017
Securities and Exchange Commission v. Jay Belson, et al., No. 2:17-civ-05953 (C.D. Cal. filed Aug. 10, 2017)
Beverly Hills Developer Agrees to Settlement for Property Flipping Investment Scheme
The Securities and Exchange Commission today announced fraud charges against the head of five real estate development companies for defrauding investors in purported southern California real estate "flips."
The SEC's complaint alleges that Jay Belson and five entities he controlled, Smarte Real Estate Investments, Inc.; Jack Rockman, LLC; John Blackstone, LLC; Residence at St. Ives, LLC; and Bellagio Place Residence, LLC, falsely promised investors that they would earn a minimum rate of return and be able to share in profits generated by successful "flips" of properties. Belson also allegedly falsely assured investors that Belson and his companies would only be paid from the profits generated by the successful property sales or specifically identified development and management fees. Through these false promises, the SEC alleges that Belson and his entities raised approximately $18 million from at least 23 investors. The SEC further alleges that, contrary to those representations, Belson stole more than $1.8 million in investor funds, which he pocketed and used to cover certain operating costs, including, among other things, office rent, utilities and salaries. The alleged theft of investor funds was eventually discovered by the largest investor on one of the projects who confronted Belson and Belson responded "You're 100% right [….] i'm [sic] not sure how I got my attitude so twisted up on this." Belson also allegedly comingled investor funds among the various projects despite a promise to keep them separate. The same investor who discovered the alleged theft of investor funds complained to Belson about his "taking money from one deal to feed another." Belson replied, "You're certainly right about my mixing the project finances with each other…..bad choice."
The SEC's complaint, filed in the U.S. District Court for the Central District of California, charges Belson and the entities with violating Section 17(a) of the Securities Act of 1933, and Section 10(b) Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Without admitting or denying the allegations in the complaint, Belson and the entities agreed to the entry of final judgments permanently enjoining them from violating the charged provisions of the federal securities laws, ordering Belson and the entity defendants to pay, jointly and severally, $1.9 million in disgorgement and interest, ordering each of the entity defendants to pay approximately $905,000 in penalties, and ordering Belson to pay a penalty of approximately $1.1 million. Belson also consented to a conduct-based injunction. The settlement is pending court approval.
The SEC's investigation was conducted by Matthew Montgomery, Nina Yamamoto, and Kristin Escalante, and supervised by Robert Conrrad of the Los Angeles office.