In a complaint filed with a U. S. district court in Los Angeles, the SEC charged thatPacific Golf Community Development, a real estate development company; Manoucher Sarbaz,its managing director; and Lee Andrew Hill, a real estate appraiser in Little Rock,intentionally or recklessly misled investors about the Rancho Lucerne project in ninemuni securities offerings. The securities law violations occurred from August 1996 toDecember 2000, the SEC said.
The project was spearheaded by Pacific Genesis Group Inc., the firm that underwrote thebonds. The Alameda, Calif.-based firm was forced to shut down after the SEC filed asecurities fraud lawsuit against it and its chairman, David Fitzgerald, that resulted inFitzgerald's being barred from the industry for at least five years. He was also orderedto pay the SEC $300,000, including both civil penalties and repayment of ill-gottengains.
The SEC suit filed yesterday against Pacific Golf, Sarbaz, and Hill is significant,commission officials said, because it shows the commission is willing to bringenforcement action against others involved in muni transactions, such as appraisers anddevelopers.
"In getting these kinds of transactions done, the gatekeepers such as appraisers play akey role," said Robert L. Mitchell, an assistant district administrator for enforcementin the SEC's San Francisco office. "In this case, Mr. Hill completely failed to fulfillthose responsibilities and we charged him with aiding and abetting violations of thesecurities laws," in addition to violating the securities laws.
In its complaint, the SEC claimed that Pacific Gold and Sarbaz repeatedly asserted thatthe project would be completed quickly, the revenue from the project would be sufficientto repay investors, in-tract financing for the project existed, valuable land had beenpledged as security for the bonds sold to investors, and the developer had obtainedcontracts to sell developed lots to homebuilders.
In fact, the project was never developed. More than six years after the first bondoffering, Pacific Golf had not sold any residential lots or built the golf course. Theproject never generated any money to repay investors. The SEC had claimed in its suitagainst Fitzgerald that the bond financings were kind of a Ponzi scheme, in which newbonds were issued to repay investors that had purchased previously issued bonds.
The SEC claimed Hill appraised the 1,375 acres of land for the project to be worth about$28,000 per acre or more when it was worth far less. Sarbaz had paid only about $1,564per acre for the land, according to the SEC.
Sarbaz also allegedly failed to disclose numerous lawsuits and liens filed against thedevelopment. Pacific Golf is in default on interest and principal payments for more than$46 million in muni securities, the SEC said.
The SEC asked the court to permanently enjoin Pacific Golf, Sarbaz, and Hill fromfurther securities law violations and to order them to pay an unspecified amount ofcivil penalties as well as disgorge any ill-gotten gains.
David M. Grey, a lawyer representing Hill, said Hill vigorously denies all the chargesfiled against him. Irving Einhorn, a lawyer representing Sarbaz, could not be reachedfor comment.
