Seventh Circuit: investors outrank lender in SEC EquityBuild Ponzi unwind

On December 4, 2025, the Seventh Circuit affirmed investor priority over a later lender in the EquityBuild receivership. 

EquityBuild, Inc. and EquityBuild Finance, LLC operated a real estate investment scheme from about 2010 to 2018. Led by Jerome and Shaun Cohen, the companies raised money through promissory notes and, later, real estate funds tied to Chicago’s South Side properties. Investors were promised double‑digit returns and told their money was secured by specific properties. In practice, EquityBuild inflated property values, funded earlier investors with later contributions, and by mid‑2018 had minimal cash. The Securities and Exchange Commission filed suit in August 2018, obtained a temporary restraining order freezing assets, and the district court appointed a receiver to liquidate assets and distribute proceeds. 

This appeal centers on two properties from a later tranche of claims: 7749 South Yates and 5450 South Indiana. Individual investors had funded these properties, and Shatar Capital Partners later provided a single $1.8 million loan intended to be secured by both. 

The timing is critical. EquityBuild purchased the Yates property on March 14, 2017, and that same day Jerome Cohen and the individual investors executed a mortgage on Yates for $2,860,000. EquityBuild purchased the Indiana property on March 30, 2017, and on March 31 Cohen and the individual investors executed a mortgage on Indiana for $3,050,000. The individual investors recorded both mortgages on June 23, 2017. 

Separately, Shatar and EquityBuild agreed in March 2017 to a $1,800,000 loan secured by both properties. On March 30, 2017, Cohen executed mortgages on Yates and Indiana in favor of Shatar, each with a maximum lien of $3,600,000, to secure the March 28 note. Shatar recorded its mortgages on April 4, 2017, more than two months before the individual investors recorded theirs. 

The district court gave the individual investors priority on both properties and limited all recoveries to principal contributed, less any amounts investors had already received from EquityBuild. It disallowed interest, fees, penalties, and costs due to insufficient proceeds. On appeal, the Seventh Circuit affirmed. 

Applying Illinois law, the court held that recording first does not control if a later mortgagee had notice – actual or imputed – of an earlier interest. For the Yates property, the court agreed that Shatar was on inquiry notice before it recorded: Shatar knew EquityBuild’s model involved “crowdfunding investors,” had been sent rollover and template lending documents but did not review them, and was told the Yates purchase had already closed before its loan funded. Those circumstances required further diligence to determine whether earlier investors held interests in Yates. 

For the Indiana property, the court recognized that the individual investors had an equitable mortgage that predated Shatar’s lien, based on their deal papers. The investors’ December 27, 2016 collateral agency and servicing agreement, a February 6, 2017 promissory note referencing a mortgage on 5450 South Indiana, and an unsigned mortgage identifying the property and aggregate loan all showed an intent to secure the investors’ loans with the Indiana property. The court further agreed that Shatar was on inquiry notice here as well. Notably, a title company email on March 30, 2017 indicated EquityBuild would receive $86,000 from the Indiana closing, and the closing documents reflected EquityBuild ultimately received nearly $110,000 – an unusual cash flow that warranted additional inquiry about other funding sources and existing claims. 

Because the investors’ secured claims exceeded the sale proceeds, Shatar’s challenge to the distribution method was moot in this context. According to the district court’s order, the receiver’s accounts held $564,284.59 from Yates and $1,789,813.98 from Indiana, while the investors’ secured claims totaled $2,689,293.00 and $2,782,692.60, respectively. After honoring the investors’ priority, nothing remained for Shatar. The court also confirmed that Shatar, acting under servicing agreements with its contributing lenders and entitled to a split on payments, could pursue the claims. 

What this means for advisors: the takeaway is precise. In multi‑investor real estate financings, recording first will not overcome inquiry notice. Where a sponsor has already closed on a property before a later loan funds, where rollover or pooled structures are in play, or where closing proceeds flow to the borrower in unexpected ways, courts may treat those facts as triggers for diligence and uphold earlier investor priority – even when those earlier interests are later recorded or take the form of equitable mortgages.