SEC: Florida Pair Raked In $170M Off Investment Ponzi Scheme

The Securities and Exchange Commission is asking a federal judge to punish a Tampa, Fla. real estate investment firm that regulators say ran a Ponzi scheme that raised $170 million from at least 1,100 mostly elderly investors.

Regulators say EquiAlt, its owner and chief executive officer, Brian Davison of Tampa, and its managing director, Barry Rybicki, of Phoenix, Ariz., misappropriated funds to pay for lavish homes, sports cars, chartered jets and other luxury items.

They were sued by the SEC in federal court in Tampa last week. In a Friday ruling, U.S. District Judge Mary Scriven granted the agency’s request for an “emergency enforcement action and a temporary restraining order and asset freeze.”

Davison and Rybicki allegedly raised millions of dollars by making “material misrepresentations” to investors about EquiAlt's investment strategy, the financial condition of the investments, and the uses of investor proceeds, the SEC complaint said.

A call to EquiAlt’s Tampa office was not returned. An email to Rybicki seeking comment was not returned.

Lavish Spending

The defendants allegedly told investors they would pool investor funds and use approximately 90% of the money to purchase under-valued real estate, rent or flip the properties, and pay investors 8-10% annual interest generated from the real estate investments, the complaint stated.

In reality, the complaint alleged, a large portion of investor money went to support Davison's and Rybicki's lavish personal spending, and less than 50% of the funds raised were used to invest in properties. In addition, money from one investment fund controlled by EquiAlt was allegedly used to make Ponzi-like payments to investors in another fund.

“Many of the investors were elderly, retired and used IRAs to fund their investments in the Funds,” the complaint said. “Furthermore, many of the investors were unaccredited or unsophisticated in that they lacked knowledge and expertise in financial or business matters, were not capable of evaluating the merits and risks of the investment, and were not otherwise capable of bearing the economic risks of the investment.”

Many of the investors were attracted by representations that the investments in the Funds were "secure," "safe," "low risk," and "conservative" and by assurances that EquiAlt could not go bankrupt, the complaint stated.

EquiAlt also used in-house employees and unlicensed external sales agents to solicit investments from the general public through cold calling campaigns, social media, websites, and in-person meetings, the SEC claimed. Those agents were “always” paid commissions of 10% to 14%, the complaint said, with a total of $24 million paid out.

However, a private placement memorandum provided to many investors was not clear on the payment of commissions or fees to registered broker/dealers or other financial intermediaries, the complaint alleged.

Payback Sought

Between 2017 and 2018 Davison and Rybicki received improper cash distributions totaling more than $11 million from the funds, the complaint alleged. In 2019, they took improper cash distributions from the funds of $6.1 million and $1.2 million, respectively, purportedly for the repayment of loans to the funds.

Davison alone spent more than $2.7 million on luxury automobiles and watches and chartering private jets, the complaint said. Davison, in April 2017, also took cash distributions from several of the funds totaling $1.8 million and used the money to pay personal back income taxes owed to the Internal Revenue Service, the complaint said.

The SEC seeks disgorgement of allegedly ill-gotten gains, and financial penalties against the defendants.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com.

© Entire contents copyright 2020 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.