SEC alleges unregistered seller raised $10 million from 190 investors

The SEC alleges a California man sold securities he was not licensed to sell, raising about $10 million from roughly 190 investors.

The Securities and Exchange Commission has filed a civil complaint accusing a California man of selling promissory notes he was not registered to sell and raising money for what the agency alleges was a fraudulent offering.

The complaint, filed June 23 in the US District Court for the Southern District of Florida, lays out a pattern worth a close read for anyone running a practice.

Between roughly March 2021 and November 2022, the SEC alleges, the defendant and a sales team he managed raised about $10 million from around 190 investors nationwide. They sold promissory notes for a company called Wells Real Estate Investment, LLC. According to the complaint, Wells ran a larger operation, raising at least $56 million from about 660 investors the same way.

The pitch, as the filing describes it, was straightforward. Investors were told Wells would buy and improve income-producing properties in South Florida, with the notes backed by company-owned real estate. The complaint alleges the defendant told investors their money was collateralized by Wells's real estate and "should be safe." The notes promised 10% to 12% annual interest on some terms, or a lump-sum 99% interest payment at the end of a 36-month note, according to the filing.

The SEC alleges the money did not go where investors were told. The complaint describes Wells as "a fraudulent scheme through and through." It alleges the company made "Ponzi-like payments with new investor funds to pay older investors," hid that its properties were already heavily mortgaged, gambled millions on speculative futures and options, and routed funds to its CEO and her husband for personal use.

For anyone running a practice, the registration point is the takeaway. The complaint alleges the defendant was not registered as a broker-dealer, was not associated with one, and never held a securities license, yet effected securities transactions and earned commissions on each sale. The filing puts those commissions at "at least $488,244," some routed through his company.

The complaint says the defendant reached investors through YouTube, LinkedIn, Instagram, and a Spanish-language radio show, "Duplica Tu Dinero" - "Double Your Money." About half the investors he sold to came from that show, according to the filing. The complaint also alleges he helped investors open self-directed IRAs so retirement money could buy the notes. Many Wells investors, the SEC alleges, suffered "catastrophic losses, including losing retirement funds."

The filing notes the defendant holds a life insurance license and a mortgage loan originator license and works as a life insurance agent.

The SEC is seeking permanent injunctions, the return of the defendant's gains plus interest, and civil penalties. It alleges he violated registration provisions of the Securities Act and the broker-registration rule of the Exchange Act.

The allegations are unproven, and no court has ruled on them.