SEC Charges Promoter, Brokers in Real Estate Investment Scheme Targeting Seniors at Free Lunch Seminars
FOR IMMEDIATE RELEASE
Washington, D.C., Oct. 22, 2009 — The Securities and Exchange Commission today charged an Oak Beach, N.Y.-based real estate funds promoter and the former president of a broker-dealer firm in Smithtown, N.Y. for orchestrating a multi-million dollar real estate investment scheme. The SEC also charged two brokers at the firm with selling unregistered securities by means of "free lunch" seminars they used to coax elderly investors into making the risky investments.
SEC Chairman Mary L. Schapiro announced the enforcement action during remarks she made today at a forum in Washington D.C. sponsored by AARP and the National Consumers League. When discussing senior fraud, Chairman Schapiro noted that the SEC has brought nearly 70 enforcement actions during the past three years against fraudsters targeting elderly investors.
According to the SEC's complaint in this case, filed in federal court in Brooklyn, N.Y., the investment scheme collected nearly $12 million from approximately 90 investors while the promoter made numerous misrepresentations, including that the return was more than 50 percent on the sale of some properties in which they were investing. The SEC also alleges that the real estate funds promoter, Charles C. Slowey, Jr., misappropriated more than $1 million of investor funds in such ways as charging excessive management fees and taking out an interest-free personal loan to purchase his own home.
"We allege that these securities professionals handed out free lunches to senior investors to win their trust and sell them risky, unregistered securities that eventually lost most of their value," said Chairman Schapiro.
George S. Canellos, Director of the SEC's New York Regional Office, added, "Although advertised as educational workshops, so-called free lunch seminars are very often sales presentations in disguise. These men used these supposed educational seminars to entice retirees with misrepresentations and convince them to invest in risky real estate ventures. And while those ventures were losing money, Slowey helped himself to investor funds to buy real estate of his own."
The SEC charged four entities involved in the scheme. Endeavor Partners LLC and Endeavor Capital Management Group LLC, both of which are controlled by Slowey, acted as the managing members of all four real estate investment funds involved. The broker-dealer firm Advanced Planning Securities, Inc. (APS) sold the Endeavor Funds through its agents. Oldham Harris, Inc. (OHI) is a Kenosha, Wisc.-based retirement advisory business through which two of the brokers provided their brokerage services to APS.
The three brokers at APS charged by the SEC are Edward D. Puttick, Sr., Gregory L. Oldham and Glenn R. Harris. Puttick was the firm's former owner and president.
According to the SEC's complaint, Oldham, Harris, and OHI solicited investors by means of invitations to free lunch or dinner "seminars" at restaurants. On several occasions, Slowey joined Oldham and Harris at the gatherings to help them make sales of Endeavor Securities to potential investors at the seminars or in meetings at the OHI office scheduled shortly afterwards. Many of the investors to whom Oldham, Harris, and OHI sold these investments were elderly and of limited means, and few had previously invested in private placement securities or securities based on distressed or subprime mortgages.
The SEC alleges that when the funds began to have increasing financial difficulties, Slowey continued to make false statements to investors. For example, he specifically told one senior investor in Florida that his investment was safe, when in fact the funds had little money left at that time. Slowey told another senior investor that the funds would recover by the following year, and he had no basis for making that statement. At other times, Slowey asked investors to reinvest their maturing interest in the Endeavor Funds even though he knew that the funds had lost substantial sums of money and owned only a handful of properties that were worth far less than the $10 million initially deposited by investors.
The SEC's complaint alleges that Puttick and APS failed to conduct sufficient due diligence into the private placement securities they were selling and failed to resolve numerous red flags concerning Slowey and the funds. As a result, they violated the implicit representation that all brokers make to their customers that there is an adequate basis for recommending an investment. Puttick and APS also failed to disclose to investors their lack of due diligence.
The SEC further alleges that the defendants violated the registration provisions of the securities laws by selling fund securities for which there was no registration statement in effect. Many of the customers were elderly, unsophisticated investors who could not have been expected to understand the risks associated with the funds' investments in distressed mortgages and other real-estate plays.
The SEC's complaint charges each of the defendants with violations of Sections 5(a) and 5(c) of the Securities Act of 1933. Further, the SEC's complaint charges Slowey, Endeavor Partners and Endeavor Capital, Puttick and APS with violations 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 SEC's complaint seeks a final judgment permanently enjoining the defendants (except APS) from future violations of the above provisions of the federal securities laws, ordering them to disgorge their ill-gotten gains plus prejudgment interest on a joint and several basis, and ordering them to pay financial penalties.
The SEC acknowledges the assistance and cooperation of the Wisconsin Department of Financial Institutions — Division of Securities, and the Florida Financial Services Commission's Office of Financial Regulation.
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For more information about this enforcement action, contact:
George S. Canellos
Director, SEC's New York Regional Office
Assistant Director, SEC's New York Regional Office
Robert H. Murphy
Branch Chief, SEC's New York Regional Office