JOBS Act marketing pitch results in fraud charges

Daniel Peterson and his company USA Real Estate Fund 1 has been charged with fraud after allegedly claiming to be able to raise billions of dollars through mass solicitations allowed by the pending Jumpstart Our Business Startups (JOBS) Act. 

The US Securities and Exchange Commission (SEC) allege that Peterson misleadingly told investors they would receive a high financial return upon being able to bring on more investors to the fund once the JOBS Act was signed into law.

Peterson allegedly promised new potential investors “secured” investments that guaranteed 10 year returns of up to 1,300 percent. 

“We've brought this court action to stop Peterson’s fraud in its tracks before it picks up more steam,” said Michael Dicke, associate director in the SEC’s San Francisco regional office. “The JOBS Act is intended to help small businesses raise capital, not to legalize fraud or give unscrupulous entrepreneurs a right to make false claims to fleece investors.”

The JOBS Act, signed into law last April but still awaiting SEC finalization, allows capital seekers to use public channels and mass advertising to solicit accredited investors. Expected to become finalized sometime in the coming months, the JOBS act will no longer prohibit GPs from openly discussing their fundraising efforts during industry conferences, conversations with representatives of the media and other public setting engagements. 

In the lead-up to the bill’s passage, Peterson allegedly sent newsletters and emails to potential investors touting his ability under the JOBS Act to raise funds via mass solicitation. After the act was passed, Peterson allegedly sent an email on October 2, 2012, saying the SEC would lift the ban on general solicitation in the coming days. 

“Peterson’s claims were false,” the SEC said in a statement. “He has no guaranteed investment product to offer, the projected returns were either fictitious or based on implausible and unsupported analyses, and he has no affiliation with any financial firm to underwrite his purported future offering.”

To lend credibility to his claims, Peterson misleadingly told investors his product would be brought to market with the help of Merrill Lynch and BlackRock, the SEC alleged. 

The fund, which according to the SEC is still soliciting investments, had a live website describing its investment philosophy at press time. 

In a “frequently asked questions” section, the site explained to investors how they will not lose their original stakes by stating: “Our protection works much the same as flood insurance or earthquake or tornado insurance. We buy financial instruments comprised of US Government treasuries, Top Rated US and world insurance and reinsurance companies (GIC and Annuity) contracts.”