U.S. Securities and Exchange Commission
Litigation Release No. 18898 / September 24, 2004
SEC v. Manoucher Sarbaz, et al. Case No. CV 03-881 CJC (C.D. Cal.)
COURT ORDERS SOUTHERN CALIFORNIA REAL ESTATE DEVELOPER AND ITS MANAGER TO PAY $5.9 MILLION PENALTY FOR BOND FRAUD
The Securities and Exchange Commission announced that on September 23, 2004, United States District Judge Cormac J. Carney in Los Angeles found a Southern California real estate developer and its manager committed securities fraud and ordered them to pay a total of $5.9 million in penalties. The Court found that the developer, Pacific Golf Community Development LLC ("Pacific Golf"), and its manager, Manoucher Sarbaz, misled purchasers of municipal bonds used to finance a portion of the planned Rancho Lucerne housing development and golf course in Lucerne Valley, California.
In a 24-page decision, Judge Carney found that Pacific Golf and Sarbaz knew that land purchased with the bond proceed and pledged as security for repayment was not worth $28,000 per acre the amount stated in documents offering the bonds to the public. The Court found that various companies controlled by Sarbaz acquired the land for an average price of $1,812 per acre. The Court further found that Pacific Golf and Sarbaz had no reasonable basis for their projections that they could sell hundreds of lots within the development each year. The Court observed that, to date, not a single lot had been sold nor had the golf course been completed. The Court found that more than $53 million in bonds were in default.
The Court entered a judgment ordering Pacific Golf to pay a civil penalty of $4,900,000 and ordering Sarbaz to pay a civil penalty of $980,000. The Court also issued an injunction that ordered both parties to refrain from fraudulent activities in the future.
A third defendant in the action, appraiser Lee Andrew Hill, settled with the Commission prior to trial. As part of the settlement, the Court ordered Hill to refrain from future securities fraud.
The case against Pacific Golf and Sarbaz was the second action brought by the Commission concerning municipal bonds sold for the Rancho Lucerne development. In December 2000, the Commission sued the an investment banker, David Fitzgerald, and the underwriter of the Rancho Lucerne bond offerings, Pacific Genesis Group, for misrepresentations to investors purchasing the bonds. Judge Charles Breyer found the defendants liable and ordered Fitzgerald and the firm to refund the proceeds of a $13 million bond offering. Later, the Court entered judgments against Fitzgerald and Pacific Genesis pursuant to settlements. See L.R. 16907, L.R. 17432.
In the case against Pacific Golf and Sarbaz, the Court found violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.