JSW Financial allegedly used money from investors in two real estate funds to prop up the firms own failing real estate developments, while concealing the losses, according to the SEC's complaint, filed in federal district court in San Francisco on Tuesday.
"The defendants told investors, many of whom were seniors, that their investments were safe because they were being used for secured real estate loans," said Marc Fagel, director of the SEC's San Francisco Regional Office. "They betrayed investors' trust and squandered nearly all of investors' money trying to keep their own failing operations afloat."
The alleged fraud took place from 2002 to 2008, and involved JSW and its predecessor, Jim Ward & Associates, according to the SEC. Instead of putting investors' money into secured residential real estate, the company's officers used most of the money to make "unsecured and undocumented loans to entities that the officers themselves controlled, which were suffering mounting losses and protracted delays on Silicon Valley real estate development projects," the SEC charged. Despite the losses, investors received monthly statements showing steady growth in the value of their portfolios.
JSW founder James S. Ward and Edward G. Locker, both of Ohio, and David S. Lee, Richard F. Tipton and David C. Lin, all Silicon Valley residents, are named as defendants in the case. The SEC also alleges that Ward and Locker together took $900,000 of investor money to purchase homes for themselves.