Court Orders California Firm and Founder Charged with Defrauding Investors to Pay Over $3.8 Million
Litigation Release No. 24109 / April 11, 2018
Securities and Exchange Commission v. Capital Cove Bancorp LLC and Christopher M. Lee aka Rashid K. Khalfani, No. 15-cv-980 (C.D. Cal. filed June 18, 2015)
A federal district court has ordered a California-based firm and its owner, whom the Securities and Exchange Commission charged in 2015 with pocketing money raised from investors, to pay over $3.8 million in disgorgement and civil penalties.
The SEC charged Christopher M. Lee, who operated under an alias Rashid K. Khalfani and hid his past criminal convictions, with raising nearly $2 million through his firm Capital Cove Bancorp LLC for purported investments in two private funds that invested in distressed real estate. Khalfani allegedly enticed investors by falsely boasting that REO Opportunities Fund II LLC and Rittenhouse Square Trust LLC were "vetted, qualified, and registered" with the SEC and several other government agencies. Khalfani allegedly stole investor money from both funds, and in some instances used it to purchase his own real estate.
The SEC obtained an emergency asset freeze to stop the alleged fraud and prevent further investor losses, and the court appointed a receiver. The SEC obtained a default judgment against Capital Cove and, in 2016, obtained summary judgment against Khalfani.
On March 22, 2018, the court entered a final judgment against Khalfani and Capital Cove, ordering them to pay, jointly and severally, disgorgement and interest of $2,011,433.92 and ordering Khalfani to pay a $1,829,868 civil penalty. The judgment also permanently enjoins Khalfani and Capital Cove from violating Section 17(a) of the Securities Act of 1933, Sections 5 and 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, Section 207 of the Investment Advisers Act of 1940, and Capital Cove from violating, and Khalfani from aiding and abetting violations of, Section 203A of the Advisers Act.
The court's entry of judgment resolves this litigation in its entirety.