Investors sue Tampa firm accused of $170 million Ponzi scheme

A Tampa real estate investment firm recently accused by federal officials of running a $170 million Ponzi scheme is now the focus of a second lawsuit filed by investors. A half-dozen individual investors sued EquiAlt, company owner and chief executive officer Brian Davison, managing director, in U.S. District Court in Tampa.

“This is unfortunately a very familiar fact pattern, especially here in Florida,” said the suit, which alleges “a classic Ponzi scheme” that used money from new investors to pay returns to previous investors. It seeks class-action status for more than 1,100 investors, many of them elderly residents of Florida, California and Arizona, who it says moved money out of individual retirement accounts to invest in EquiAlt. The plaintiffs invested from $60,000 to more than $965,000 in EquiAlt, making them among the largest investors in the company, the suit says. Its lead plaintiff, Steven Rubenstein, is a retired physical education instructor from Arizona “who was seeking a safe source of retirement income” when he and his wife invested $75,000 with EquiAlt, the suit says. Like the U.S. Securities and Exchange Commission, the investors contend that EquiAlt has not delivered on its promise to deliver annual returns of 8 percent or better. It also claims Davison and Rybicki have used $11 million in investor funds to buy Ferraris, Porsches and a Rolls Royce, as well as for expensive watches and to pay for travel on chartered jets.

The investors, who live in Arizona and California, also say in a court filing that about a half dozen financial advisers in those states played a key role in steering clients to EquiAlt in exchange for commissions of 10 to 14 percent that were not disclosed to investors. One Arizona financial adviser raised more than $15 million for EquiAlt and was paid $1.5 million in commissions by the firm. In this case, the investment was not legitimate and not suitable for anybody,” he said. At the moment, the investors’ claims against EquiAlt and its principals have been stayed essentially blocked by the judge who put EquiAlt’s affairs into the hands of a receiver in the Securities and Exchange Commission case. But a second attorney for the investors said Friday that his clients can still go after the financial advisers and others, such as accountants, lawyers and bankers, who aided EquiAlt.

In addition to misappropriating funds for their own use and paying undisclosed commissions to unregistered sales agents, the suit contends that EquiAlt and its executives have used money from one of its internal real estate funds to buy property for another fund or for third-party entities owned by Davison and using money from one fund to repay investors in another fund.

As a result, the suit says, although EquiAlt has raised more than $170 million to buy real estate, it currently owns only about $55.3 million in real property. Davison, who earlier said, “we deny the (Security and Exchange Commission’s) allegations and look forward to our day in court.”

Topics: Real Estate Investment, Ponzi Scheme, Class-Action Lawsuit, Florida Laws

Work cited: Richard Danielson, February 28, 2020

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