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EquityBuild SEC Complaint- Further Details of Alleged Ponzi Scheme

As recently reported, on August 15, 2018, the SEC initiated formal charges against Defendants Jerome Cohen, Shaun Cohen, and their companies — Equitybuild, Inc. (“Equitybuild”) and Equitybuild Finance, LLC (“Equitybuild Finance”) — in connection with the SEC’s efforts to halt a purported Ponzi scheme.  As alleged in the SEC’s Complaint, “Since at least 2010, Defendants … have raised $135 million from more than 900 investors.  Defendants raised these funds by falsely promising investors safe investments, secured by income-producing real estate, that generated returns of 12% to 20%.”

Money Whirlpool

According to the SEC, investors were allegedly defrauded in several ways.  For example, the Defendants’ purportedly failed to disclose sizable up-front fees of 15-30% taken off the top of investor equity.  In addition, the Defendants allegedly misrepresented the returns earned on various real estate deals, touting their “impressive returns” when, in actuality according to the SEC, investors sustained heavy losses on investments in predominantly South Side Chicago real estate deals.  The SEC has further alleged that rather than inform investors of financial distress, father and son Defendants Jerome and Shaun Cohen, respectively, elected instead to continue “[t]o solicit investors with offers of safe investments and outsized returns.”

Equitybuild is structured as a Florida corporation.  Since at least 2010, the company has solicited investments, promising returns that were to be generated through the purchase, renovation and development of Chicago real estate.  Equitybuild Finance, f/k/a Hard Money Company, LLC, is structured as a Delaware limited liability company.  Both companies were founded by Defendant Jerome Cohen, 63 years of age, and currently a resident of Naples, Florida.  Defendant Shaun Cohen is a resident of New York, New York, and serves as the President and sole officer of Equitybuild Finance.

As noted in the SEC’s Complaint, none of the securities offered by Defendants were registered with the SEC.  As we have discussed in prior blog posts, whenever investors are solicited to invest in an unregistered securities offering, commonly known as a private placement, they should proceed with the utmost caution.  Typically, private placement deals are very complex, and furthermore, only provide investors with limited information and transparency, often marketed via a Private Placement Memorandum (“PPM”) or similar disclosure documents.

As alleged in the SEC’s Complaint, Defendants “utilized a variety of promotional methods to solicit investments in the Notes.”  These Notes, sometimes referred to as Private Mortgage Notes, were offered to investors with interest rates ranging from 12-20%, with terms ranging from 6 mos. – 24 mos. According to the SEC, Defendant Shaun Cohen managed a network of salespeople who reported directly to him and who were instructed “[t]o bring in at least $50,000 in new investments each day.”

Investors who were solicited to invest in Equitybuild Private Mortgage Notes through a stockbroker or financial advisor may have viable FINRA arbitration claims or litigation options, in the event that the brokerage firm or Registered Investment Advisory (“RIA”) firm did not perform adequate due diligence before recommending the investment, or alternatively, in the event that the brokerage firm or RIA failed to properly supervise its financial advisor in connection with his or her recommendations to invest in Equitybuild securities.

Investors who wish to discuss a possible claim may contact a securities arbitration attorney at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or for a no-cost, confidential consultation.

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