The U.S. District Court for the District of Oregon granted summary judgment to the Securities and Exchange Commission in a securities fraud case involving a large-scale real estate securitization and management business.
Defendants, at their peak, operated over 280 senior housing facilities in 34 states with over $2 billion in asset value. The SEC alleged that defendants, offering investors interests in tenancies in common in these facilities, misled the investors by not disclosing that the negative and positive returns of individual facilities were shifted among the facilities in order to give, among other things, false impressions of profitability. Defendants also solicited new investors while materially failing to disclose to them that major credit defaults and foreclosures were imminent.
The court held that the tenancies in common constituted an investment in a common enterprise wherein investors depended on the defendants for returns and, therefore, were securities. The court went on to hold that defendants made material misstatements by failing to disclose the manner by which profits and losses were spread throughout the real estate portfolio and by failing to disclose rapidly deteriorating credit conditions. (SEC v. Sunwest Management., Inc., No. 09 Civ. 6056, 2009 WL 4718775 (D. Or. Dec. 9, 2009))