Florida Federal Judge Mary Scriven Lets SEC’s $170M Real Estate Ponzi Scheme Lawsuit Continue

Investors sue Tampa firm accused of $170 million Ponzi scheme

FEB 28, 2020 | REPUBLISHED BY LIT: MARCH 9, 2021

Brian Davison is chief executive officer of EquiAlt, a Tampa-based real estate investment firm that faces two lawsuits, one from the U.S. Securities and Exchange Commission and another from a half-dozen investors (voluntarily dismissed) seeking class-action status, in U.S. District Court in Tampa.

Equialt bought this Safety Harbor home in a tax deed sale. Times (2015)

TAMPA — 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 this week sued EquiAlt, company owner and chief executive officer Brian Davison, managing director Barry Rybicki and Tony James Michael Kelly, EquiAlt’s chief investment officer, 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.

Those advisers, who are also named as defendants in the lawsuit, have a responsibility to make sure investments are legitimate and suitable for their clients, said Jeffrey Sonn, an Aventura attorney representing investors.

“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.

“The tip of the iceberg,” said Adam Moskowitz, a Coral Gables attorney whose firm is working on the case with Sonn and Bonnett Fairbourn Friedman & Balint of Phoenix, Ariz. “Even though we have a lot of what happened already, there is still a lot to uncover. … We are continuing our investigation before we add parties.”

Davison told the Tampa Bay Times in 2015 that EquiAlt’s business was based on finding real estate bargains at tax-deed sales, which take place when county officials auction off properties owned by taxpayers who are at least two years behind paying their property taxes.

Federal regulators say EquiAlt and its leaders promised investors that 90 percent of their money would be used to buy real estate in distressed markets, and that they would earn 8 to 10 percent annually as the properties were rented or flipped to new owners. EquiAlt described the opportunities as “secure,” “safe,” “low risk” or “conservative,” though the investors’ suit says they were anything but.

The PPP loan application system must have been on an “HONOR SYSTEM”. It begs the question. Which judge is assigned to this case in S.D. Fla… https://t.co/tzmC9EsxSC pic.twitter.com/42Gu88xHE4

— LawsInTexas (@lawsintexasusa) March 8, 2021

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.

• 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 this month said “we deny the (Security and Exchange Commission’s) allegations and look forward to our day in court,” did not respond to a voicemail message and detailed text message to his mobile phone on Friday. Kelly did not respond to a request for comment the Times left at EquiAlt’s office.

Washington D.C. attorney Stephen Cohen, who previously said federal regulators presented “an inaccurate picture of Mr. Rybicki’s business dealings” and that “we look forward to addressing these matters with the court,” did not reply to a Times email or voicemail message to his office requesting comment on the investor’s suit.