SEC files charges over NJ real estate firm’s alleged $600m ‘Ponzi-like scheme’

Charges filed over what regulator terms ‘callous behaviour’.

A New Jersey real-estate firm has been charged by the SEC with running “a Ponzi-like scheme that raised approximately $600m from about 2,000 investors”.

National Realty Investment Advisors LLC (NRIA) is said to have raised funds from 2018 by promising investors their money would be used to develop real estate properties that would generate profit through a fund the firm set up to invest in such projects. But, alleges the SEC, the funds were used to pay other investors, finance an NRIA executive’s personal and family expenses, and pay reputation management firms to stymie investor due diligence.

Manipulated statements

The firm is also alleged to have manipulated the fund’s financial statements in marketing material. Investors were promised returns of up to 20%. But the fund had little to no revenue, and it filed for Chapter 11 bankruptcy protection on June 7, 2022.

“In classic Ponzi fashion, these defendants allegedly told investors that they would be paid distributions from profits of their fund when, in reality, payments were being made from the investors’ own funds,” said Thomas P. Smith, Jr., Associate Regional Director of Enforcement in the SEC’s New York Regional Office. “What makes this behavior even more callous is that they allegedly took advantage of 382 retirees who had contributed more than $94m in savings.”

Injunctions sought

NRIA and four former executives are charged with violating the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The SEC is also seeking injunctions against future violations of anti-fraud provisions, disgorgement of ill-gotten gains plus prejudgment interest, penalties, and officer and director bars against the four executives.