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Sunday, June 16, 2024 | Back issues
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Real Estate Mogul Ran $80M Ponzi Scheme, SEC says

ALBUQUERQUE (CN) - Prominent New Mexico real estate mogul Douglas F. Vaughan was accused by the Securities and Exchange Commission of running an $80 million Ponzi scheme.

The Vaughan Company began selling promissory notes with fixed returns between 10 and 25 percent in 1993. The SEC says Vaughan promised investors their money was secured by his personal wealth and land assets, and that the aggregate value on the notes would never exceed $2.5 million. He also told investors that his company would use the funds to make big profits on new real estate opportunities, the SEC says.

Vaughan claimed to prefer raising money from investors instead of banks because he had vowed "never to go back to banks" after one mistreated him in 1992, the SEC said.

He sold his notes and placated his investors with false earnings reports, claiming to be purchasing properties in Phoenix and Las Vegas and making "hard money" loans to builders and contractors, the SEC said.

In fact, he paid all of his interest obligations with cash from new investors, according to the indictment.

In June 2008, Vaughan added a second company, Vaughan Capital LLC, to his plan and began offering $125,000 "membership units," but he used members' money to grow his original Ponzi scheme, the SEC said.

By January 2010, the aggregate principle on the notes and memberships value exceeded $80 million dollars, all supposedly secured by $3.8 million in land assets and Vaughan's personal guarantee.

With an average interest promise of 17.5 percent, Vaughan and his two companies owed $14 million in fixed interest payments and returns annually. This exceeded his ability to find new investment capital, so the scheme collapsed, the SEC said.

Both the Vaughan companies filed chapter 11 bankruptcy in February.

Neither was registered with the SEC for securities sales, the commission said.

The SEC seeks a judgment securing all assets, and charges Vaughn and his companies with fraud and other securities violations.

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