On August the 11th, the Securities and Exchange Commission announced fraud charges against the operator of five real estate development companies. Jay Belson is accused of defrauding investors by promising a minimum rate of return in southern California real estate “flips”.

Belson controlled the following real estate development companies.

  • Smarte Real Estate Investments Inc.
  • Jack Rockman LLC
  • John Blackstone LLC
  • Residence at St. Ives LLC
  • Bellagio Place Residence LLC

According to the SEC’s complaint, investors were promised a minimum rate of return and the opportunity to share the profits generated from successfully flipped properties. Belson also told investors that he and his companies would only be paid for successful property sales and for certain development and management fees.

The SEC alleges that Belson and his companies raised roughly $18 million from at least 23 investors. The SEC has also accused Belson of stealing more than $1.8 million and utilizing the company for certain operating costs, such as rent, utilities and salaries. Eventually, the largest investor became aware of the alleged theft and confronted Belson directly.

Belson is also accused of using investor funds for various projects despite promising to keep them separate. Again, the largest investor confronted Belson that he was “taking money from one deal to feed another.” Belson apparently admitted to the accusation. He replied, “You’re certainly right about my mixing the project finances with each other..bad choice.”

The SEC’s complaint was filed in the U.S. District Court of the Central District of California. Belson and his companies have agreed to the entry of final judgement, without admitting or denying guilt. They’re enjoined from violating the charged provisions in the future.

The settlement is pending court approval. Belson and the defendant companies are ordered to pay $1.9 million in disgorgement and interest, as well as $905,000 in penalties. Belson has been ordered to pay a penalty of roughly $1.1 million.