Rise In Unregistered Real Estate Projects Prompts Warning

A rise in solicitations for investments in real estate projects that are not found on any stock exchange has prompted the Arizona Corporation Commission’s Securities Division to warn investors unregistered real estate ventures.

Recently, the Securities Division brought action against two fraudulent real estate investment scams. The Commission ordered USA Barcelona Realty Advisors, LLC, to pay $1,215,353 in restitution and $450,000 in administrative penalties for securities violations relating to a capital raising plan to build hotels because investors were not told that certain promoters had a prior failed real estate venture and a prior criminal conviction related to investment fraud. The Commission also ordered, Jason Todd Mogler and Tri-Core Companies, LLC, to pay a total of $4,399,834 in restitution and $400,000 in administrative penalties relating to a promissory note scheme in connection with a Mexican land investment.

According to the Commission, unregistered real estate scams tout above-market returns with little-to-no risk to investors, and very little effort required of investors outside of contributing capital to fund the projects.

Scammers will typically solicit investments through a phone call, or advertisements to attend informational workshops about how to become wealthy by investing in real estate.

The Corporation Commission says that while large returns for minimal effort may be enticing to investors, it cautions that time should be taken to fully vet the potential investment opportunity. Potential investors are encouraged to take their time to find out what the project entails and should base their investment decision on concrete financial information, such as tax returns and accounting data, and not solely on the promoters estimates and projections.

A promoter’s inability or unwilling to explain how the real estate investment will make money with tangible metrics like cash flow and net income should be a red flag. Another red flag is if the promoter emphasizes the large returns made by someone you know directly, because promoters will often pay large returns to the first few investors in order to generate word-of-mouth interest in the scam.

Prior to investing in any real estate-related project, potential investors should get verifiable answers from the promoter in writing to the following questions:

• Are you registered to offer and sell investments in Arizona? If not, why?
• Have you ever been sued, convicted, or disciplined by a law enforcement agency?
• How and when do I get my money out of the investment?
• What are my rights should the company go bankrupt?

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