The Securities and Exchange Commission has filed a civil complaint against a California man accused of selling unregistered promissory notes, raising approximately $10 million from about 190 investors nationwide. The complaint, lodged on June 23 in the U.S. District Court for the Southern District of Florida, details an alleged scheme that ran from March 2021 to November 2022.
According to the SEC, the defendant and his sales team marketed notes issued by Wells Real Estate Investment, LLC, a company that purportedly raised at least $56 million from roughly 660 investors through similar means. The defendant allegedly earned at least $488,244 in commissions, some funneled through his own company, despite never being registered as a broker-dealer or associated with one.
The pitch, as described in the filing, promised investors that their money would be used to acquire and improve income-producing properties in South Florida, with the notes secured by company-owned real estate. The notes offered annual interest rates of 10% to 12% on certain terms, or a lump-sum payment of 99% interest at the end of a 36-month period. The defendant allegedly assured investors their principal was collateralized and "should be safe."
However, the SEC alleges the funds were misappropriated. The complaint characterizes Wells as "a fraudulent scheme through and through," claiming the company made "Ponzi-like payments with new investor funds to pay older investors," concealed that its properties were already heavily mortgaged, gambled millions on speculative futures and options, and diverted money to the CEO and her husband for personal use. Many investors suffered "catastrophic losses, including losing retirement funds," according to the filing.
The defendant reached investors through YouTube, LinkedIn, Instagram, and a Spanish-language radio show titled "Duplica Tu Dinero" ("Double Your Money"). The SEC alleges that about half of the investors he sold to came from that show. He also helped investors open self-directed IRAs to channel retirement savings into the notes. The defendant holds a life insurance license and a mortgage loan originator license and works as a life insurance agent.
The SEC is seeking permanent injunctions, disgorgement of ill-gotten gains plus interest, and civil penalties. The case underscores the importance of registration compliance, as the defendant allegedly violated registration provisions of the Securities Act and the broker-registration rule of the Exchange Act. For advisors, this case echoes other recent enforcement actions, such as the SEC's allegations against a retired soccer player who used a partner's unlocked laptop to trade, and the Oregon investors' claims against Norada Capital for hiding a Ponzi scheme in promissory notes.
The case also highlights the risks of unregistered offerings, particularly those marketed through social media and radio. As the SEC continues to crack down on such schemes, advisors should ensure their own practices remain compliant. The Supreme Court's recent ruling stripping activist investors of a key legal tool in closed-end fund battles further underscores the evolving regulatory landscape.
