On May 10, 2012, the Securities and Exchange Commission charged a California-based real estate company and its owners with defrauding potential investors by boasting a false company track record to tout their purported real estate expertise while concealing the bankruptcy of their previous company.
The SEC alleges that Michael J. Stewart, John J. Packard, and Randall A. Smith created Apartments America, LLC to pool investor proceeds from an unregistered offering of securities and invest primarily in apartment buildings in Southern California and Arizona. They solicited potential investors through a website, Internet advertisements and postings, cold calls, solicitation letters, and advertising in a national newspaper. They boasted a track record of producing more than a 60 percent annual return on investment and creating more than $100 million in net equity.
According to the SEC’s complaint filed in federal court in Orange County, California, what potential investors did not know is that Apartments America was a new company with no assets and no track record. Stewart, Packard, and Smith were merely using the same investment strategy and selective statistics from their prior bankrupt company that had defaulted on $91.6 million in promissory notes held by 647 investors.
According to the SEC’s complaint, Stewart lives in San Clemente, California, and Packard and Smith each live in Long Beach, California. Together they formed Apartments America in September 2009, just three months after Pacific Property Assets (PPA) filed for bankruptcy. Stewart and Packard owned PPA and Smith worked for them. In the months prior to defaulting on its promissory notes, PPA was actively soliciting investor funds and promising an annual interest rate of 24 to 30 percent.