The Securities and Exchange Commission this week accused the owner of a real estate investment company of perpetrating a $20 million real estate fraud scheme by convincing more than 600 investors to give money under the auspices of flipping houses in the Chicago area.
But instead of making money on real estate, George Slowinski allegedly took some of the investors’ money for himself and his associates, made bad investments, and eventually cost his investors $17 million.
The SEC this week formally charged Slowinski, a Texas resident who owned and ran a company called Rebuilding America, with several violations of federal securities laws.
According to the SEC, Slowinski allegedly told investors that Rebuilding America would pool investor money to acquire, refurbish, and sell for profit residential real estate primarily located in the South Side of Chicago.
The SEC claims that Slowinski and Rebuilding America lured investors into giving money by presenting Rebuilding America as a successful real estate program, and falsely promising returns of as much as 38% in only two years.
Slowinski also allegedly presented himself as a “real estate expert with a successful track record of building and refurbishing residential properties.”
According to the complaint, Slowinski touted Rebuilding America’s profitability, but concealed that between 34% and 42% of every investment dollar would be diverted to Slowinski and other Rebuilding America principals in the form of undisclosed fees and commissions.
The SEC further claims that Slowinski “quickly realized” that the company’s business model was “untenable,” leaving the company unable to repay investors as promised.
But, according to court documents, Slowinski allegedly continued to solicit investors and accept the hidden fees.
The SEC further accuses Slowinski of diverting more than $2.8 million of investor funds, which were supposed to go towards construction on specific Rebuilding America projects, to improperly pay for his companies’ payroll, overhead, and cost overruns on other projects.
Eventually, the scheme began to collapse on itself.
“As a result of the hidden fees and Rebuilding America’s inability to make even modest profits from its real estate projects, Rebuilding America could not pay investors the promised returns,” the SEC said in its complaint. “Instead, Rebuilding America simply paid investors one year’s worth of interest payments. But these first year payments were merely Ponzi-style returns which, unbeknownst to investors, came from investor principal as opposed to the profits from any real estate projects.”
By 2017, Rebuilding America completely fell apart. The company’s real estate projects failed, and the State of Illinois revoked Rebuilding America’s corporate status.
All told, investors received less than half the promised interest payments and none of their principal investment. In total, the investors lost more than $17 million.
The SEC’s complaint alleges that Slowinski violated the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and aided and abetted Rebuilding America's violations of the antifraud provisions of Sections 17(a) and 10(b), and Rule 10b-5 thereunder.
The SEC is seeking injunctive relief, disgorgement of ill-gotten gains, and civil penalties.