SEC accuses Sunwest Management of securities fraud
By Kevin McCoy, USA TODAY
A major corporate operator of assisted-living facilities and its founder were accused of a massive securities fraud Monday in what the Securities and Exchange Commission charged was a scheme that raised $300 million from investors who now face the loss of their money.
The allegations, the latest in a string of alleged scams uncovered amid the national recession, target Oregon-based Sunwest Management; Jon Harder, the firm’s founder and former CEO; and several related entities and individuals.
Harder defense attorney Stephen English said his client had done nothing wrong. Lawyers for Sunwest did not immediately respond to a message seeking comment on the case.
At its peak in 2007, Sunwest managed more than 320 retirement facilities in 34 states and had estimated assets of $2 billion, the SEC said. But the company collapsed in December as Harder filed for bankruptcy court protection.
From 2006 through 2008, Harder allegedly raised $300 million from more than 1,300 investors who were told that their money would buy partial ownership interest in a specific retirement facility and provide a 10% annual investment return, the SEC charged.
But the money was allegedly commingled in a single fund that was used to pay operating expenses, investor returns and other costs. As a result, the SEC charged that misled investors didn’t realize that more than half the retirement sites were losing money.
"As the national credit markets tightened in 2007 and 2008, the house of cards Harder had built came crashing down," the SEC charged. But Harder and co-defendants allegedly continued to raise funds from investors in what the SEC alleged became a virtual Ponzi scheme, in which money from new investors is used to pay earlier ones.
As of January, more than 100 of Sunwest’s retirement homes were in foreclosure, receivership or bankruptcy, "resulting in the effective elimination" of the investors’ financial stakes in the facilities, the SEC complaint charged.
"This is a tragic example of investors being defrauded out of millions of dollars because they were far more exposed to a downturn in the real estate market than they had been led to believe," said Marc Fagel, regional director of the SEC’s San Francisco office.
English, however, said a federal court on Monday denied the SEC’s request for an emergency asset freeze and appointment of a receiver to administer Sunwest and try to recover funds on behalf of investors.
The court ruled that a Sunwest operating agreement approved by Harder and investors as part of the bankruptcy "was sufficient to protect the interest" of investors and found that the proposed receiver "was an added level of oversight, which was not necessary," English said.
"It’s just like any other lawsuit in which claims are made, and now they have to gather the proof for it," English said of the federal allegations.
Fagel said the SEC had sought the protections on investors’ behalf and officials would now proceed with the lawsuit.