ALBUQUERQUE (CN) – The SEC claims that prominent New Mexico real estate figure Douglas F. Vaughan ran an $80 million Ponzi scheme. The agency sued Vaughan; The Vaughan Company, Realtors; and Vaughan Capital in Federal Court.
The SEC claims that Vaughan and his companies began selling promissory notes with promised fixed returns of between 10 percent and 25 percent in 1993. Vaughan promised investors that their money was secured by his personal wealth and land assets, that the aggregate value on the notes would never exceed $2.5 million and that his company would use the money to make big profits on new real estate opportunities, according to the complaint.
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. He sold the notes and placated investors with false earnings reports, claiming to be buying properties in Phoenix and Las Vegas and making “hard money” loans to builders and contractors, according to the complaint.
But the SEC says Vaughan paid all of his interest obligations with cash from new investors.
In June 2008 Vaughan created Vaughan Capital LLC and began offering $125,000 “membership units,” but simply used members’ money to expand the original Ponzi scheme, the SEC says.
By January 2010, the aggregate principal on the notes and membership value exceeded $80 million, all supposedly secured by $3.8 million in land assets and Douglas Vaughan’s personal guarantee, the SEC says. It claims that Vaughan’s net worth today is below zero.
With an average interest promise of 17.5 percent, Vaughan and his two companies owed $14 million in fixed interest payments and returns annually, the SEC says. This exceeded Vaughan’s ability to find new money, and the scheme collapsed; both Vaughan companies filed for Chapter 11 bankruptcy on Feb. 21, according to the complaint.The SEC says that neither of Vaughan’s companies was registered with it for securities sales.