Clearwater Management Press: New Hampshire Firm Accused of Taking Part in Multi-Million Ponzi Scheme

There are countless types of Ponzi schemes out there. From fake investments in stocks or cryptocurrency to Ponzi pyramid marketing schemes. Investigators have seen them all. The real estate industry also had its share of Ponzi schemes. One of them is a recent case from Massachusetts. The target of this scam was a company. What happened? The value of the assets was artificially raised. The investment in question is property.

This is the typical scenario in a Ponzi scam. Usually, scammers first start by advertising an excellent investment opportunity. Then, they begin recruiting investors. And obviously, they collect money from each. The promise is that high returns on investment are on their way. And sooner than expected. Then, con artists usually pay some of the first investors. However, not with the money generated from the investment. But from the money brought by new contributors.

This boosts investors’ trust. As a result, the scheme stays afloat for a while. However, after some time, even new investors claim their promised returns. This is what shakes the whole pyramid scheme. Finally, it is the reason why it crashes. No more new investors join in. And the existing ones want to cash out and leave.

Yet, since most Ponzi schemes are scams, this is often impossible. By the time investors realize they were conned, scammers are long gone. However, in cases such as the Massachusetts real estate Ponzi scheme, con artists get caught. Let’s see what this case implied.

Table of Contents

The Scam

The protagonists were Massachusetts investment and real estate firms. One company dragged another into a real estate multi-million Ponzi scheme. Homes Development Corp. HDC, a Burlington firm, filed a legal claim against Edmund & Wheeler, Inc. The latter is a Franconia company dealing with 1031 exchanges. Basically, firms like this enable investors to defer capital gains obtained from real estate assets. However, there is a condition. Use the gains in some type of property that resembles the original one. The asset that yielded the gains.

The Background

It was not the first time Homes Development Corp (HDC) partnered with Edmund & Wheeler. The two companies did business in the past. Hence, there was mutual trust. This time, however, things were different. HDC representatives claimed their partners recommended they invest $5 million in a highly profitable venture. This opportunity consisted of real estate investments in Alabama. The assets at stake were the property of Rockwell TIC, a company based in Utah. Its tenant was another company, Noah Corporation. In theory, the rental property in question could yield a 7% return. Moreover, in time, investors were promised a 2% annual profit increase.

According to the claimant, the two companies inflated the property’s value artificially. The project itself was not rolling yet. Moreover, the rents the defendant claimed it gathered were from other investors – inexistent. Just like in a classic Ponzi scheme. Money didn’t come from profitable businesses. But from other investors. Furthermore, after Rockwell and Noah collected the alleged rent, they both filed for bankruptcy.

This raised the investors’ concerns. Moreover, the two companies were not at their first fraud attempt. According to the Securities and Exchange Commission, they had also been involved in a civil fraud case in Utah the previous year. The commission concluded that the property managed by Noah was utterly unprofitable. The company did not generate gains. Instead, it just absorbed new investors’ capital.

Moreover, in the civil fraud case, the defendants took almost $40 from investors. This money came from nearly 100 different individuals. They invested in Noah TIC Interests. This securities investment Ponzi scam lasted for nearly three years.

The Lawsuits

In the first case, Noah’s president and Rockwell’s owners were the defendants. In the second case, the HDC’s lawsuit was brought against Edmund & Wheeler.

According to HDC, the broker was aware of the unfeasible business. Moreover, the company had a strong financial interest. Just like it happens in most Ponzi schemes, recruiters get awards. The more new investors they lure in, the more they earn. HDC claimed during the lawsuit that the broker got 3 to 6% from the deal. All the while, HDC lost $1.6 million. This money went into property shares. The defendant got none of the money back or any returns. Also, they didn’t get any rent.

Furthermore, the claimant said the defendants, the property owners, and the tenants, were close partners. However, the defendants acknowledged none of these. According to their testimony, their companies simply went bankrupt. Also, they are still the owners of the property. Nonetheless, at the moment, they don’t have tenants. Hence, they don’t yield gains.

Conclusion

Similar scams were encountered in many other industries. Ponzi schemes are hard to spot as they seem legit investment opportunities. However, investors should proceed cautiously. Especially if the investment scheme promises high returns in little time.

Pranab Bhandari

Pranab Bhandari is an Editor of the Financial Blog “Financebuzz”. Apart from writing informative financial articles for his blog, he is a regular contributor to many national and international publications namely Tweak Your Biz, Growth Rocks ETC.

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