Tuesday, September 21, 2010
The SEC today charged a Minneapolis-based attorney and two San Francisco-area promoters with defrauding investors in a real estate lending fund by concealing the financial collapse of the fund's sole business partner. The SEC alleges that Todd A. Duckson, an attorney who resides in Prior Lake, Minn., and Michael W. Bozora and Timothy R. Redpath, who reside in Marin County, Calif., raised more than $21 million from investors in the Capital Solutions Monthly Income Fund after the fund's sole business partner defaulted on its obligations to the fund. The SEC alleges that after this May 2008 default, the fund - whose sole business was to make real estate loans to a single borrower - had no meaningful income and was using new investor funds to pay existing investors.
The SEC alleges that after the default, Duckson, Bozora, and Redpath told investors that the fund was poised to take advantage of attractive lending opportunities provided by the collapse in the U.S. credit and real estate markets, when in fact the fund' s business strategy had failed.
According to the SEC's complaint filed in federal court in Minneapolis, Bozora and Redpath launched the fund in 2004 and, through August 2009, raised approximately $74 million from approximately 450 investors from across the U.S. After the May 2008 default by the fund's sole borrower, the fund foreclosed on the borrower's real estate projects. The SEC alleges that in late 2008, Bozora and Redpath asked Duckson, who was acting as the fund's outside counsel, to take over managing the fund. The SEC alleges that Duckson then began managing the fund while Bozora and Redpath continued to raise money from new investors. The SEC alleges that Bozora, Redpath, and Duckson failed to disclose the default and foreclosure to investors for several months.
The SEC's complaint also charges True North Finance Corporation, a Minneapolis real estate lending company that merged with the fund in 2009, and True North's Chief Financial Officer Owen Mark Williams with accounting fraud. The SEC is seeking permanent injunctions, disgorgement, prejudgment interest and civil penalties against all of the defendants, and officer-director bars against Bozora, Redpath, Duckson, and Williams.