Newport Beach Real Estate Crowdfunding Company Charged with Operating a Ponzi Scheme

On October 28th, 2021, the SEC announced charges against California-based real estate firm BNZ, alongside co-founders Brett Barber and Louis Zimmerle in relation to the fraudulent raising of $13.5 million in funds from a pool of more than 100 retail investors. According to the complaint filed with the U.S. District Court for the Central District of California, BNZ, at the direction of Barber and Zimmerle made false representations to investors about both the nature of their business activities and the prospective returns, sometimes up to 10% annually, from investments made in supposed real estate projects.

According to the complaint, BNZ, Zimmerle, and Barber used less than half of the funds raised, $6.4 million, to invest in real estate projects and other investments- generating roughly $300,000 in profits. Despite this, the defendants paid investors returns of $1.7 million or more- primarily using funds raised from other investors, in a manner similar to a traditional Ponzi scheme. Additionally, the defendants are have alleged to have transferred more than $1.6 million to Barber via his company, Guaranteed Income Solutions, Inc., as well as more than $700,000 directly to Zimmerle.

The SEC also alleges that the defendants made several misleading and false statements to investors regarding a number of subjects, including where exactly investor payout funds were coming from as well as Barber’s financial and educational background- failing to mention that Barber had been barred by FINRA from doing business with any FINRA member firm. 

More specifically, the SEC complaint charges that Barber, Zimmerle, and BNZ violated antifraud provisions of “Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, violating the registration provisions of Sections 5(a) and (c) of the Securities Act, and, as to Barber and Zimmerle, violating the broker-dealer registration provisions of Section 15(a) of the Exchange Act.” 

The complaint also lists Barber and Zimmerle as “control persons of BNZ” under Section 20(a) of the Exchange Act and seeks permanent injunctions, disgorgement with prejudgement interest, and civil penalties against Barber, Zimmerle, and BNZ, in addition to disgorgement with prejudgment interest from Relief Defendant Guaranteed Income Solutions. 

The investigation and charges against BNZ and its founders were primarily conducted by SEC staff in the Los Angeles Regional Office, including Senior Counsel for Enforcement L. James Lyman and Carol Kim, supervised by Assistant Regional Director Robert Conrrad. SEC litigation on the matter will be led by Charles Canter and supervised by Amy Jane Longo. In a recent press release pertaining to the enforcement action, the SEC acknowledged the assistance of the United States Attorney’s Office as well as the FBI. The U.S. Attorney’s Office for the Central District of California also recently announced criminal charges against Zimmerle and Barber in a parallel action.

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