SALT LAKE CITY (CN) - The SEC accuse a father and son of running a $200 million Ponzi scheme "through a complex web of over 200 entities," under the rubric of the father's company, Management Solutions, Inc.
Wendell A. Jacobson, 58, "is the founder and controlling person of numerous entities that own and manage over 8,000 units in apartment complexes located in eight different states," according to the federal complaint.
His son, Allen R. Jacobson, 33, manages Management Solutions' "investor relations."
Both men and the company are based in Fountain Green, Utah, about 75 miles south of Salt Lake City.
"Operating from a base in Fountain Green, Utah, through a complex web of over 200 entities, Wendell Jacobson and Allen Jacobson have raised more than $200 million from approximately 225 investors," the complaint states. "The defendants have raised investment funds through material and pervasive misrepresentations, and have operated the investment program as a wide-scale Ponzi scheme since at least January 1, 2008.
"Wendell and Allen Jacobson purport to offer investors the opportunity to invest in limited liability companies ('LLCs') that directly or indirectly own large, multi-unit apartment communities in eight states. Wendell and Allen Jacobson represent to investors that they buy apartment complexes at significantly discounted prices with low occupancy rates, renovate them, improve their management, and eventually seek to sell them within five years. This business is operated under the umbrella of Management Solutions, Inc. ('MSI'), which is wholly owned by Wendell Jacobson.
"The defendants make various representations to investors in the LLCs, for example, that their returns will be derived from the apartment complex in which they have invested and will not be commingled with other funds; that none of the Jacobsons, MSI, nor investors have ever lost money on a property; and that Wendell Jacobson or one of his wholly owned entities always owns and has contributed at least 50 percent of the funding for each LLC. These representations to investors are false.
"Moreover, defendants do not disclose to investors that the investor funds are immediately diverted to, and pooled in, one of several large bank accounts, most commonly in the account of Thunder Bay Mortgage Company ('Thunder Bay'). Each of the pooled accounts, including Thunder Bay, is wholly owned by Wendell Jacobson. After commingling and pooling new investor funds into these accounts, the defendants then redirect the funds to pay operating expenses of the numerous entities and also to pay promised returns to earlier investors.
"Because investor funds in Thunder Bay and other accounts are pooled and used to pay returns to other investors, defendants' operation is a classic Ponzi scheme."
The SEC seeks disgorgement, penalties and an injunction.
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