SEC Charges Real Estate Investment Firm and Principal with $100 Million Offering Fraud
Litigation Release No. 25508 / September 15, 2022
Securities and Exchange Commission v. Secured Income Group, Inc., et al., No. 8:22-cv-01690 (C.D. Cal. filed September 15, 2022)
The Securities and Exchange Commission today announced charges against Orange County, California-based Secured Income Group, Inc. ("SIG"), its 100% owner and president Max McDermott, and its investor relations representative Stacey Porter, who together raised approximately $100 million from hundreds of investors for SIG's "Secured Debentures" offering between July 2017 and January 2021.
The SEC's complaint alleges that SIG, at McDermott's direction, touted to investors that it would pool their money to make real estate loans secured by first lien positions on the underlying properties and that their investments would be secured by this real estate. According to the SEC's complaint, SIG and McDermott dramatically departed from SIG's business model and in doing so misrepresented material aspects of the investment. The complaint alleges that though SIG did originate real estate loans, it also sold off tens of millions of dollars of its loans along with the corresponding security interests. As a consequence, the outstanding principal value of SIG's real estate loan collateral has at all points in time been substantially less than what it owed to its investors.
The SEC's complaint, which was filed in the Central District of California, charges SIG and McDermott with violating the securities registration requirements of Sections 5(a) and 5(c) of the Securities Act of 1933 and the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint also charges McDermott as a control person under Section 20(a) of the Exchange Act for SIG's violations of that Act. The complaint charges Porter with violating the securities registration requirement of Sections 5(a) and 5(c) of the Securities Act and the broker-dealer registration requirement of Section 15(a) of the Exchange Act. The SEC seeks permanent injunctions, disgorgement, prejudgment interest, and civil penalties against all defendants, and also an officer and director bar against McDermott.
Without admitting or denying the complaint's allegations, SIG and McDermott have consented to the entry of judgments that enjoin them from violating the charged provisions, and that impose an officer and director bar against McDermott. The judgments also provide for the court to order, upon motion of the SEC, disgorgement with prejudgment interest and/or civil penalties against SIG and McDermott if deemed appropriate. The proposed settlement is subject to court approval.
The SEC's investigation was conducted by Christopher Nowlin and Dora Zaldivar and supervised by Spencer Bendell. The litigation will be led by Lynn M. Dean and supervised by Gary Leung.