A Utah real estate investment company offered investors the promise of a guaranteed return on their investment in “turnkey” houses, but instead bilked more than 250 people out of $28 million by operating a Ponzi scheme, the Securities and Exchange Commission said Thursday.
According to the SEC, Marquis Properties fraudulently represented that it sells interest in “turnkey real estate properties, promissory notes secured by real properties, and joint venture agreements to purchase real properties.”
The SEC said in its complaint that Marquis, the company’s president and chief executive officer, Chad Deucher, and its executive vice president, Richard Clatfelter, Deucher and Clatfelter represent that Marquis locates, purchases, renovates, and sells single family and small multi-family homes in “lucrative areas” of the country.
According to the SEC, Deucher and Clatfelter tell investors that Marquis has “proven renovation crews, property managers and realtors on the ground” to assist with all stages of the project, thereby eliminating the need for direct involvement.
Additionally, the SEC said that Deucher and Clatfelter represent to investors that they will receive “guaranteed return of principal and returns” from their investment in the form of rental income, interest payments, and/or profits from the sale of properties.
The SEC complaint also states that Deucher and Clatfelter represent that investments with Marquis are “safe, low-risk, or risk-free” because the investment proceeds will be secured by a first deed of trust on property wholly owned by Marquis, and the investments will be “over-collateralized.”
But what Deucher and Clatfelter don’t tell investors is that the properties offered as collateral were often not owned by Marquis, were substantially encumbered, or were in uninhabitable or blighted condition, the SEC said.
Deucher and Clatfelter also allegedly don’t tell their investors that the company itself is insolvent and unable to make payments to its investors without the influx of new investor money.
“Because investors are being repaid from new investor funds, Marquis’ operation is a classic Ponzi scheme,” the SEC said in its complaint.
“Marquis does not appear to have legitimate business operations,” the SEC continued. “Marquis has had little income, if any, from business operations.”
The SEC also stated that Deucher used investors’ funds to pay his personal expenses, including at least $376,300 given to his wife.
The SEC said Thursday that it obtained an asset freeze and other ancillary relief against Marquis Properties and is seeking injunctive relief, disgorgement, prejudgment interest, and civil money penalties from Marquis, Deucher, and Clatfelter.
To read the full SEC complaint involving Marquis Properties, click here.