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SEC files charges in alleged $197 million mortgage fraud
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(July 28, 2009 - Tuesday) - By John Letzing, MarketWatch
The SEC said in a statement that its complaint, filed in federal court in Phoenix, charges Radical Bunny LLC and its four managing members with falsely telling investors that their funds would be used by Mortgages Ltd. for commercial real-estate development, when in fact the money was ultimately used for a small range of risky loans.
"Even to friends and family, they repeatedly overstated the safety of the investment and their knowledge of the underlying business to which they lent investor funds," said Rosalind Tyson, the director of the SEC's Los Angeles office, in a statement.
Mortgages Ltd. Chief Executive Scott Coles committed suicide in June, according to media reports; the company filed for bankruptcy protection that same month.
The four managing members of Radical Bunny charged by the SEC with making false and misleading statements include Tom Hirsch and Harish Shah, who operate an accounting firm, and Howard and Berta Walder, a pharmacist and grade-school principal.
The SEC alleges that the four used semi-annual meetings at a luxury golf resort in Scottsdale, Ariz., to persuade attendees to invest in Radical Bunny, while ignoring the fact that the investors' money was being shifted into riskier projects.
In addition, the regulator alleges that Hirsch received at least $3 million in "vendor" fees as part of the alleged scheme, while the Walders received at least $2 million and Shah received $700,000.
The SEC said it's seeking permanent injunctions, disgorgement of "ill-gotten gains" and financial penalties against all of the defendants.
John Letzing is a MarketWatch reporter based in San Francisco.
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