On February 18, Securities and Exchange Commission announced that it filed an emergency enforcement action and a temporary restraining order and asset freeze against Tampa private real estate company EquiAlt LLC, and its principals Brian Davison, and Barry Rybicki. The Commission is alleging that EquiAlt, through its funds, raised more than $170 million from at least 1,100 investors. The investor rights attorneys at Goldman Scarlato & Penny PC law firm are investigating the EquiAlt ponzi scheme allegations, and the potential liability of entities and individuals that participated in, or assisted, the alleged fraudulent conduct.
Investors who believe they may have lost money in activity related to EquiAlt Funds, Davidson and Rybicki’s alleged fraud scheme are encouraged to contact attorney Alan Rosca or his colleagues Paul Scarlato and Chris Pfeiffer for a free, no-obligation discussion about potential recovery options. Call 888-998-0530 or email email@example.com to learn more.
EquiAlt Funds Ongoing Investigation
EquityAlt LLC was launched in 2011 by founder and CEO Brian Davison as an effort to reinvent himself after a previous lending company, Affinity Capital LLC, went bust and he had to file for bankruptcy, Tampa Bay Times reports.
According to the SEC complaint, EquiAlt’s primary business is to manage its four real estate investment funds: EquiAlt Fund, LLC, EquiAlt Fund II, LLC, EquiAlt Fund III, and EA SIP, LLC. At all times Davison controlled the finances of the funds and was responsible for making the Ponzi scheme payments to EquiAlt investors, the complaint notes. Barry Rybicki, in his capacity as Managing director, allegedly was responsible for communications with investors and for executing agreements with investors.
On its website EquiAlt claims that it is “an investment management firm that specializes in alternative assets and private equity.” and promotes itself as being “Simple, Stable and Un-Leveraged”. The Commission alleges that this is one of the many misrepresentations EquiAlt made to investors.
SEC Accuses EquiAlt of Engaging in Fraudulent Conduct
In its complaint filed on February 11, 2020, the Securities and Exchange Commission alleged that: 1) the EquiAlt funds and its principals engaged in Ponzi Scheme; 2) Brian Davison and Barry Rybicki used investor money for their personal benefit; 3) EquiAlt, Davison and Rybcki engaged in misrepresentation, omissions, and false claims.
EquiAlt Ponzi Scheme Allegations
Between 2010 and end of 2019, EquiAlt raised more than $170 million from 1,100 investors, the complaint notes. Of the total amount, $145 million was raised in the last four years. The Commission alleges that by the end of 2020, investors in three of the four EquiAlt funds will be owed approximately $167 million in principal and interest. In comparison, at the end of last year EquiAlt had only $6.8 million in cash, and the SEC alleges that EquiAlt earned just $4.4 million last year by administering properties it owned.
According to the complaint, at all times the revenues generated by the EquiAlt funds were consistently less than the amount of interest owed to investors. The complaint goes on to state that since their inception, the EquiAlt funds were paying old investors by using money raised from new investors, in a Ponzi-like fashion.
EquiAlt Investor Money Used to Buy Luxury Items
The Commission alleges that on multiple occasions Davison and Rybicki received improper cash distributions from the EquiAlt Funds. The complaint states that they used this money to buy expensive personal items such as luxury cars, jewelries, and private jets.
In addition, Davison used investor money to pay personal taxes owed to the Internal Revenue Service, and stayed multiple times in a $2,7 million Manhattan condominium which has never generated any income for EquiAlt Funds despite being purchased with investor funds, the complaint notes.
EquiAlt Funds Allegedly Made Misrepresentations, Omissions, and False Claims
According to documents filed in the SEC case, currently under the review by securities lawyers at Goldman Scarlato & Penny, most of the EquiAlt investors were unsophisticated, unaccredited, and many of them used their retirement funds to invest in EquiAlt. “I didn’t understand the document much” said a retired investor from California in a SEC questionnaire filed as an Exhibit to Motion for Temporary Restraining Order unsealed on February 14.
In a press release announcing the lawsuit, Securities and Exchange Commission Miami regional director Eric I. Bustillo declared that ‘Davison and Rybicki made ‘too good to be true’ promises about nearly every material aspect of EquiAlt’s business’.
EquiAlt Investments Marketed as Safe
According to the SEC case documents, EquiAlt, Davison and Rybicki were pitching investments in the Funds as “safe” and “conservative”. Allegedly, investors reported that they were told that EquiAlt Funds “never lost dollars since inception”. In addition, the investors were assured that “EquiAlt could not go bankrupt” the complaint notes.
Alleged False Claims about the use of EquiAlt Investor Funds
EquiAlt, Davison and Rybicki allegedly told investors that 90% of their money would be invested in distressed real estate, and that they would earn 8 to 10% annually, once the properties were rented or flipped to new owners. Instead less than half of investor funds were used to buy real estate, the complaint notes.
According to the Commission, the remaining funds was used for undisclosed and improper purposes such as the payment of millions of dollars in fees and bonuses to EquiAlt and others, causing the Funds to be unable to cover the principal and interest owed to investors, the complaint alleges.
Additional alleged misrepresentations and omissions by EquiAlt
According to documents filed in the SEC case, under the review by securities attorney Alan Rosca and his colleagues, EquiAlt, Davison and Rybicki falsely claimed that at least one Fund was registered with the Securities and Exchange Commission.
The complaint also states that the aforementioned defendants used third party sales agents and in-house employees to market and raise funds from the general public, and allegedly failed to disclose that over the course of several years the EquiAlt paid $24 million in commissions to sales agents using investor money.
Additional misrepresentations were allegedly made by EquiAlt regarding using licensed brokers, and the fact that certain qualified persons were involved in the management of the Funds.
EquiAlt Principals Deny SEC Allegations
In a text message to the Tampa Bay Times, Davison said, “we deny the allegations and look forward to our day in court.”
“The SEC’s filings present an inaccurate picture of Mr. Rybicki’s business dealings, and we look forward to addressing these matters with the court.” declared Stephen Cohen of Sidley Austin LLP, attorney for Barry Rybicki in an email to Tampa Bay Business Journal.
Finally, it is important to note that, as of the date of this article, there has not been a finding of liability as to the complaints mentioned in this article, unless otherwise indicated.
Securities Lawyers Investigating EquiAlt
The Goldman Scarlato & Penny PC investment fraud lawyers represent investors who lose money as a result of fraud. Currently, our attorneys are investigating EquiAlt ponzi scheme allegations. The goal of their investigation is to determine whether investors have additional claims for compensation against entities that may have assisted in the perpetration of the EquiAlt alleged fraud.
The firm takes most cases of this kind on a contingency fee basis and advance the case costs; payments for their fees and costs only come out of money recovered for clients. A securities lawyer and adjunct professor of securities regulation, attorney Alan Rosca has represented thousands of victimized investors, both in the United States and around the world, in cases ranging from arbitrations to class actions.
Investors who believe they may have experienced loss as a result of the EquiAlt’s alleged ongoing fraud may contact attorney Alan Rosca or his colleagues for a free, no-obligation evaluation of their recovery options. Investors can call 888-998-0530, email firstname.lastname@example.org, or use the contact form on this webpage to get in touch.