ST. PAUL, Minn. (CN) - A federal jury convicted an attorney, his investment management firm and a real estate lending fund of a $22 million securities fraud, the SEC said.
After a 5-week trial, the jury on Tuesday convicted Minneapolis attorney Todd Duckson, Minneapolis-based Capital Solutions Monthly Income Fund, and Transaction Finance Fund Management, an LLC owned by Duckson that became Capital Solutions' investment adviser in November 2010, the SEC said in a statement announcing the verdict.
The SEC charged them with securities fraud in September 2010. It claimed that Capital Solutions Monthly Income Fund raised $21.6 million through a series of unregistered offerings from March 2008 through December 2009.
For most of the fund's short lifetime, it made mezzanine loans - loans subordinate to more senior loans - to a single borrower, which defaulted on its obligation in May 2008, according to the SEC. The defendants were charged with making false and misleading statement to hide the fund's deteriorating condition.
"The complaint also alleged that the fund would use proceeds raised in offerings primarily to make real estate loans and other investments, when in fact the fund needed to use most of the proceeds to pay senior lenders on properties the fund had acquired and to make interest payments to existing investors," the SEC said in the statement. "Duckson played a key role in drafting the written documents provided to investors, first as the attorney for the fund and, in and after November 2008, as the fund's manager."
The SEC asked for injunctions, disgorgement and civil penalties.