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Alleged $135M Ponzi Scam Involving Equitybuild

The US Securities and Exchange Commission is accusing Equitybuild Inc., a real estate investment firm that is based in Florida, and its owners of operating a $135M Ponzi scam that defrauded approximately 900 investors. The regulator contends that the company, its President/CEO Jerome Cohen, and Vice President Shaun Cohen, who are father and son, promised investors double-digit returns of 12-20%, even as their business was incurring massive losses. Meantime, investors were paid returns using earlier investors’ money in Ponzi-like fashion.

Equitybuild investors were mostly unsophisticated, non-accredited investors without much experience in investing in real estate. The Cohens allegedly touted a purportedly original strategy for identifying an undervalued property in Chicago, Illinois’ South Side that they claimed would render huge returns. Investors were promised promissory notes that named a specific property. Third parties were supposed to buy the properties with mortgages that the investors had funded and this would generate returns.

Unfortunately, there don’t appear to have been many third-party buyers. Equitybuild was the one that owned most of the properties and the real estate investment company purportedly stopped searching for third-party buyers a few years ago.

Ponzi Scam

Meantime, the company allegedly kept 15-30% of investors’ money as fees that were not disclosed to them. Instead, they were told that the properties were costlier than what they were in reality, and the two men pocketed the differences in price.

In 2015, Equitybuild suffered $12M in losses. It also allegedly started using investors’ money to pay interest on what the company owed. Over the next two years, the real estate investment company made $3.8M in revenue while paying investors over $14M in interest.

Last year, Equity build started offering investors the opportunity to get involved in pooled funds that were supposed to go toward the purchase of properties and their renovations. However, claims the SEC, most of these properties were the exact ones used to secure other investors’ notes. The Ponzi scam began to unravel this year when some earlier investors were notified that the company was in financial trouble and would no longer be able to pay the interest due to them.

The alleged Ponzi scam is believed to back as far as 2010. The SEC’s complaint claims that as of the end of last year, investors were owed close to $75M.

Shaun Cohen, who is also president of EquityBuild Finance, which is Equitybuild’s investment vehicle, told Law360 that he would combat the regulator’s allegations, including that he and his father failed to notify investors that they had both previously filed for bankruptcy protection while claiming to have proven track records of success and a high level of “mastery.”

Real Estate Investor Fraud

At Shepherd Smith Edwards and Kantas, LLP, our real estate investor fraud lawyers work with investors throughout the US. We help inexperienced retail investors, high net worth individual investors, sophisticated and experienced investors, and institutional investors in fighting to recoup their investor fraud losses. Contact our investor law firm today if a brokerage firm and their broker persuaded you to invest with Equitybuild and you sustained losses as a result. Your first session with us is a free, no obligation case assessment.

SEC Accuses Florida Firm of using South Side Apartments in Ponzi scheme, Crain’s Chicago Business, August 16, 2018

Real Estate Investment Co. A $13M Ponzi Scheme, SEC Says, Law360, August 16, 2018

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