ACC — The Arizona Corporation Commission’s Securities Division warns investors to take their time and conduct research prior to investing in any unregistered real estate venture. The Securities Division has seen a rise in solicitations for investments in real estate projects that are not found on any stock exchange.
Unregistered real estate scams tout above-market returns with little-to-no risk to investors, and very little effort required of investors outside of contributing capital to fund the projects. Scammers will typically solicit investments through a phone call, or advertisements to attend informational workshops about how to become wealthy by investing in real estate. While large returns for minimal effort may be enticing to investors, the Corporation Commission cautions that time should be taken to fully vet the potential investment opportunity. Potential investors are encouraged to take their time to find out what the project entails and should base their investment decision on concrete financial information, such as tax returns and accounting data, and not solely on the promoters estimates and projections.
“Often touted is the promoter’s success in real estate investing, however in some instances a simple internet search would show otherwise,” said Arizona Corporation Commission Chairman Tom Forese. “Investors tend to ignore this simple, yet crucial, step in their research of potential investments because the promoter utilizes high pressure sales tactics that demand action immediately before the opportunity evaporates.”
As a general rule, always get information about possible investments in writing; upstanding promoters will happily oblige such a request. A red flag is the promoter being unable or unwilling to explain how the real estate investment will make money with tangible metrics like cash flow and net income. Another red flag is if the promoter emphasizes the large returns made by someone you know directly, because promoters will often pay large returns to the first few investors in order to generate word-of-mouth interest in the scam.
Prior to investing in any real estate-related project, potential investors should get verifiable answers from the promoter in writing to the following questions:
- Are you registered to offer and sell investments in Arizona? If not, why?
- Have you ever been sued, convicted, or disciplined by a law enforcement agency?
- How and when do I get my money out of the investment?
- What are my rights should the company go bankrupt?
Recently, the Securities Division brought action against two fraudulent real estate investment scams. The Commission ordered USA Barcelona Realty Advisors, LLC, to pay $1,215,353 in restitution and $450,000 in administrative penalties for securities violations relating to a capital raising plan to build hotels because investors were not told that certain promoters had a prior failed real estate venture and a prior criminal conviction related to investment fraud.
The Commission also ordered Jason Todd Mogler and Tri-Core Companies, LLC, to pay a total of $4,399,834 in restitution and $400,000 in administrative penalties relating to a promissory note scheme in connection with a Mexican land investment.
The Corporation Commission’s Securities Division is only a click or call away with an Investigator on Duty who can provide investors with important background information on the investment promoter and company. The Commission encourages potential investors to always check with the Investigator on Duty prior to investing their money by either calling 602-542-0662 or emailing [email protected]. Investors can find helpful information on the Commission’s investor education website at http://azinvestor.gov.
To find out more information about the two cases mentioned above, go to the Corporation Commission’s online docket at http://edocket.azcc.gov and enter docket number S-20938A-15-0308 (USA Barcelona Realty Advisors, LLC) and S-20867A-12-0459 (Jason Todd Mogler, Tri-Core Companies, LLC).