SEC Alleges Fraud Against Real Estate Investor Over $100M Offering
The Securities and Exchange Commission filed a complaint against Secured Income Group, alleging that the real estate investment company committed fraud related to its $100M “Secured Debentures” offering between 2017 and 2021.
SIG used mass marketing, including Google Ads and the company's website, to find investors, ultimately raising money from dozens of nonaccredited investors who had no previous relationship with the company, according to the SEC, which filed the complaint in U.S. District Court, Central District of California, Southern Division.
Orange County, California-based SIG told its investors that it would pool their money to make high-quality real estate loans to residential real estate developers that would be secured by first liens on the underlying properties, the complaint alleges, but then "departed from this purported business model and in doing so misrepresented material aspects of the investment to prospective investors."
SIG did originate real estate loans, according to the SEC, but also sold off millions of dollars of its loans, along with the corresponding security interests and income streams, to third-party buyers.
As a result, the SEC alleges, the outstanding principal value was consistently less than what the company owed its investors, contrary to SIG’s claim that the investment was secured by real estate.
The outstanding principal balance of SIG’s loans fell from over $23M at the end of 2020 to less than $1M by September 2021, where it has remained ever since, the complaint notes. SIG currently owes about $16M in principal and $1.5M in accrued interest to its investors.
The complaint was filed against the company, but also its owner and president, Max McDermott, and its investor relations representative, Stacey Porter.
Without admitting or denying the complaint’s allegations, SIG and McDermott have consented to the entry of judgments against them, DI Wire reports.