hes out of jail and up to his same old tricks, hopefully when he goes to trial later this year they throw away the key.
LATEST ARREST
4/4/2014
current charges
Fraud Security Bus Practice >=$100k
Money Laundering >=$200k
Theft Stolen Prop>=$200k
LAST CHARGES:
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
________________________________________________
SECURITIES AND EXCHANGE COMMISSION, :
:
Plaintiff, :
:
v. ::
Civil Action No._______
DEREK A. NELSON, CAPITAL MOUNTAIN :
HOLDING CORP., SYSTEMS XXI, ACT I, LLC :
and SYSTEMS XXI, ACT II, LLC, :
:
:
Defendants, and :
:
PLOUTEO, INC. and HOMAIDE REAL ESTATE :
SERVICES CORP., :
:
Relief Defendants, :
Solely for the Purposes of :
Equitable Relief. :
________________________________________________:
COMPLAINT
The Securities and Exchange Commission (“Commission”) files this Complaint against
Defendants Derek A. Nelson (“Nelson”), Capital Mountain Holding Corp. (“CMHC”), Systems
XXI, Act I, LLC (“Act I”), and Systems XXI, Act II, LLC (“Act II”) (collectively, “Defendants”),
and, solely for purposes of equitable relief, Plouteo, Inc. (“Plouteo”) and Homaide Real Estate
Services Corp. (“Homaide”) (collectively, “Relief Defendants”). The Commission alleges:
SUMMARY
1. This is an offering fraud case. From on or about June 2008 through September
2009, Defendants raised at least $25 million through the offer and sale of high-yield notes issued
by CMHC, Act I, and Act II. The offerings were not registered with the Commission.
2. In offering and selling the notes, Defendants represented to investors that the
offering proceeds would be used to buy real property at deeply discounted values, and that the
properties would then be improved, leased, and resold at a profit.
3. Defendants’ representations to investors were false. Instead of investing offering
proceeds in the real estate necessary to support legitimate business operations, Defendants used
most of the funds to: make Ponzi payments to investors; purchase luxury items for Nelson; pay
Nelson’s personal expenses; and pay overhead expenses for various companies controlled by
Nelson. In addition, investor funds, and assets acquired with investor funds, were transferred to
Relief Defendants.
4. In summer 2009, Defendants’ scheme collapsed, payments to investors ceased,
and lien holders began foreclosure proceedings on the properties acquired and held by
Defendants.
5. By this conduct, Defendants have offered and sold securities in violation of the
registration and antifraud provisions of the federal securities laws, specifically Sections 5(a), 5(c)
and 17(a) of the Securities Act of 1933 (“Securities Act”) [15 U.S.C. §§ 77e(a), 77e(c) and
77q(a)] and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. §
78j(b)] and of Rule 10b-5 [17 C.F.R. § 240.10b-5] thereunder.
6. The Commission, in the interest of protecting the public from further such
fraudulent activities and harm, brings this action seeking the appointment of a receiver and an
asset freeze, permanent injunctive relief, disgorgement of Defendants ill-gotten gains, plus
prejudgment interest thereon, and civil monetary penalties. Additionally, the Commission is
seeking disgorgement from the Relief Defendants—entities to which Defendants transferred
investor funds and assets.
JURISDICTION AND VENUE
7. The investments offered and sold by Defendants are “securities” under Section
2(1) of the Securities Act [15 U.S.C. § 77b] and Section 3(a)(10) of the Exchange Act [15 U.S.C.
§ 78c].
8. The Commission brings this action pursuant to the authority conferred upon it by
Section 20(b) of the Securities Act [15 U.S.C. § 77t(b)], and Sections 21(d), 21(e), and 27 of the
Exchange Act [15 U.S.C. §§ 78u(d), 78u(e), and 78(aa)].
9. Defendants, directly or indirectly, made use of the means or instruments of
transportation and communication, and the means or instrumentalities of interstate commerce, or
of the mails, in connection with the transactions, acts, practices, and courses of business alleged
herein. Certain of the transactions, acts, practices, and courses of business alleged herein took
place in the Northern District of Texas.
DEFENDANTS
10. Nelson, age 42, is a resident of Fairview, Texas. He owns and controls CMHC,
Plouteo and Homaide. Nelson is also the managing member of Act I and Act II.
11. CMHC is a Texas corporation owned and controlled by Nelson with its principal
place of business in Dallas County, Texas. CMHC has also had offices in Tampa and Las Vegas.
CMHC has never registered an offering of securities under the Securities Act or a class of
securities under the Exchange Act.
12. Act I is a Texas limited liability company managed by Nelson. Its principal place
of business is in Dallas. Act I has never registered an offering of securities under the Securities
Act or a class of securities under the Exchange Act.
13. Act II is a Texas limited liability company managed by Nelson. Its principal
place of business is in Dallas. Act I has never registered an offering of securities under the
Securities Act or a class of securities under the Exchange Act.
RELIEF DEFENDANTS
14. Plouteo is a Nevada corporation controlled by Nelson. Certain properties
purchased by CMHC where titled in the name Plouteo, for no apparent consideration.
15. Homaide is a Texas corporation controlled by Nelson. Homaide received at least
$1.2 million of investor funds, for no apparent consideration.
THE INVESTMENT SCHEME
Fraudulent, Unregistered Note Offerings
16. Between June 2008 and September 2009, Defendants raised at least $25 million
through the offer and sale of notes issued by CMHC, Act I, and Act II. Hundreds of investors
residing in several states (including Texas), Canada, and Australia purchased the notes. The note
offerings were not registered with the Commission.
The CMHC Note Offering
17. In about June 2008, Nelson began marketing CMHC notes to investors. The
notes were marketed via CMHC’s website (www.capitalmountain.com) and a Canada-based
investment club.
18. CMHC notes promised 18. CMHC notes promised to pay investors a return of 10% interest per month for
three months. Nelson represented to investors that CMHC would use the proceeds from the sale
of the notes to purchase distressed residential real estate – i.e., property on which the owner
could no longer afford to make mortgage payments – significantly below market value. Nelson
told investors that after acquiring the discounted property, he would rehab or rent it, and then sell
the property at or near its true value, thereby generating the returns promised to investors.
19. Investors in CMHC notes typically wired their investments to a CMHC bank
account. Once investor funds were received, Nelson and CMHC provided the investors with
written information on the note program, including the promissory notes.
20. Nelson and CMHC raised at least $15 million from the sale of the CMHC notes.
The Act I and Act II Note Offerings
21. In about October 2008, Nelson began offering notes issued by Act I and Act II.
The notes were marketed via the Act I and Act II website, www.systemsxxi.com, and a Canadabased
investment club. Nelson also persuaded many CMHC investors to roll their CMHC
investments into Act I and Act II investments.
22. Prospective Act I and Act II investors were given private placement memoranda,
which claimed, among other things, that: (1) the notes paid 18% annually for two years (Act I) or
21% annually for five years (Act II); (2) 90% of the offering proceeds would be used for
property purchases or “note development,” with the remaining 10% to be used for payroll,
marketing, rent, filing fees, brokerage fees, and other related expenses; and (3) Nelson would be
paid an annual salary of just $24,000.
23. Investors in Act I and Act II notes typically wired their investments to an Act I or
Act II bank account. Those investor funds were then transferred into CMHC bank accounts and
comingled with other investor funds.
24. Defendants raised approximately $10 million from the sale of Act I and Act II
notes.
Defendants Made False Statements and Misrepresentations to Investors
25. Instead of investing note proceeds in distressed real estate as promised,
Defendants misapplied a majority of the funds.
26. Of the $25 million raised from the CMHC, Act I, and Act II offerings: at least $10
million was used to make Ponzi payments to investors; at least $2.6 million was transferred to
Nelson’s personal bank accounts; more than $1 million was used to make a down payment on
Nelson’s personal residence in Fairview, Texas; $80,000 was used by Nelson to purchase a
luxury car; and $1.2 million was transferred to Homaide.
27. Defendants falsely represented to investors that investing in CMHC, Act I and
Act II notes was low risk. In fact, in August 2008, Nelson told investors that the only investment
risk was if he were to die, because no one at CMHC had his expertise. Prospective investors in
Act I and Act II were falsely assured that their investments were secured with first lien positions
on the properties. In fact, Defendants typically acquired the properties by assuming the
mortgages of the prior homeowners or by borrowing funds from a third-party lender. Therefore,
in a majority of the instances, Act I and Act II investors did not have first lien positions on the
properties acquired by Defendants.
28. In summer 2009, with insufficient new investor funds, Defendants were unable to
continue making Ponzi payments to earlier investors or keep mortgages on the properties current.
As a result, payments to investors ceased and lien holders began foreclosing on many of the
properties acquired and held by Defendants.
FIRST CLAIM
Violations of Section 17(a) of the Securities Act
29. Plaintiff Commission repeats and incorporates paragraphs 1 through 28 of this
Complaint by reference as if set forth verbatim.
30. Defendants, directly or indirectly, singly or in concert with others, in the offer or
sale of securities, by use of the means and instrumentalities of interstate commerce and by use of
the mails have: (a) employed devices, schemes, and artifices to defraud; (b) obtained money or
property by means of untrue statements of a material fact and omitted to state a material fact
necessary in order to make the statements made, in light of the circumstances under which they
were made, not misleading; and (c) engaged in transactions, practices, and courses of business
which operate or would operate as a fraud and deceit upon the purchasers.
31. As a part of and in furtherance of their scheme, Defendants, directly and
indirectly, prepared, disseminated, or used contracts, written offering documents, promotional
materials, investor and other correspondence, and oral presentations, which contained untrue
statements of material facts and misrepresentations of material facts, and which omitted to state
material facts necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading.
32. With respect to violations of Sections 17(a)(2) and (3) of the Securities Act,
Defendants were negligent in their actions regarding the representations and omissions alleged
herein. With respect to violations of Section 17(a)(1) of the Securities Act, Defendants made the
above-referenced misrepresentations and omissions knowingly or with severe recklessness
regarding the truth.
33. By reason of the foregoing, Defendants have violated and, unless enjoined, will
continue to violate Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)].
SECOND CLAIM
Violations of Section 10(b) of the Exchange Act and Rule 10b-5
34. Plaintiff Commission repeats and incorporates paragraphs 1 through 28 of this
Complaint by reference as if set forth verbatim.
35. Defendants, directly or indirectly, singly or in concert with others, in connection
with the purchase or sale of securities, by use of the means and instrumentalities of interstate
commerce and by use of the mails have: (a) employed devices, schemes, and artifices to
defraud; (b) made untrue statements of a material fact and omitted to state a material fact
necessary in order to make the statements made, in light of the circumstances under which they
were made, not misleading; and (c) engaged in acts, practices, and courses of business which
operate or would operate as a fraud and deceit upon purchasers, prospective purchasers, and any
other persons.
36. As a part of and in furtherance of their scheme, Defendants, directly and
indirectly, prepared, disseminated, or used contracts, written offering documents, promotional
materials, investor and other correspondence, and oral presentations, which contained untrue
statements of material facts and misrepresentations of material facts, and which omitted to state
material facts necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading.
37. Defendants made the above-referenced misrepresentations and omissions
knowingly or with severe recklessness regarding the truth.
38. By reason of the foregoing, Defendants violated and, unless enjoined, will
continue to violate Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5
thereunder [17 C.F.R. § 240.10b-5].
THIRD CLAIM
Violations of Sections 5(a) and 5(c) of the Securities Act
39. Plaintiff Commission repeats and incorporates paragraphs 1 through 28 of this
Complaint by reference as if set forth verbatim.
40. Defendants, directly or indirectly, singly and in concert with others, have been
offering to sell, selling and delivering after sale, certain securities, and have been, directly and
indirectly: (a) making use of the means and instruments of transportation and communication in
interstate commerce and of the mails to sell securities, through the use of written contracts,offering documents and otherwise; (b) carrying and causing to be carried through the mails and
in interstate commerce by the means and instruments of transportation, such securities for the
purpose of sale and for delivery after sale; and (c) making use of the means or instruments of
transportation and communication in interstate commerce and of the mails to offer to sell such
securities.
41. As described above, no registration statements were ever filed with the
Commission or otherwise in effect with respect to these transactions and offerings.
42. By reason of the foregoing, Defendants have violated and, unless enjoined, will
continue to violate Sections 5(a) and 5(c) of the Securities Act [15 U.S.C. §§ 77e(a) and 77e(c)].
RELIEF REQUESTED
WHEREFORE, Plaintiff respectfully requests that this Court:
I.
Permanently enjoin Defendants from violating Sections 5(a), 5(c) and 17(a) of the
Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
II.
Order Defendants to disgorge an amount equal to the funds and benefits they obtained
illegally, or to which they are otherwise not entitled, as a result of the violations alleged, plus
prejudgment interest on that amount.
III.
Order Defendants to pay civil monetary penalties in an amount determined as appropriate
by the Court pursuant to Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)] and Section
21(d) of the Exchange Act [15 U.S.C. § 78u(d)] for the violations alleged herein.
Order such further relief as this Court may deem just and proper.
Dated this 20th day of November 2009.
Respectfully submitted,
s/ Robert Long
Robert Long
Arizona Bar No. 019180
United States Securities and Exchange Commission
Burnett Plaza, Suite 1900
801 Cherry Street, Unit 18
Fort Worth, Texas 76102
Telephone: (817) 978-6477
FAX: (817) 978-4927
E-mail: [email protected]
Attorney for (Plaintiff) Securities and
Exchange Commission
SEC INFORMATION AND ARTICLES:
DALLAS (CN) - Derek Nelson ran a $25 million Ponzi scam through his so-called real estate company, Capital Mountain Holding Corp., the SEC says in Federal Court. Nelson, of Fairview, Texas, promised he could buy property at a discount, fix it up and lease it, but he spent the money on himself until the scheme collapsed this summer, the SEC says.
The SEC sued Nelson, 42, Capital Mountain, and his other companies, Systems XXI, ACT I LLC, Systems XXI ACT II, and relief defendants Plouteo and Homaide Real Estate Services.
"Instead of investing offering proceeds in the real estate necessary to support legitimate business operations, defendants used most of the funds to make Ponzi payments to investors; purchase luxury items for Nelson; pay Nelson's personal expenses; and pay overhead expenses for various companies controlled by Nelson," the federal complaint states. "In addition, investor funds, and assets acquired with investor funds, were transferred to relief defendants.
"In summer 2009, defendants' scheme collapsed, payments to investors ceased, and lien holders began foreclosure proceedings on the properties acquired and held by defendants."
The SEC says there were hundreds of victims.
It seeks disgorgement, penalties and an injunction.
November 24, 2009 – The SEC alleges that Derek A. Nelson ran a Ponzi Scheme using fictitious companies: Capital Mountain Holding Corporation (“CMHC”), Systems XXI, Act I, LLC, and Systems XXI, Act II, LLC. In a Complaint filed last week in federal court for the Northern District of Texas, the SEC brought civil claims against Nelson, CMHC, Act I, and Act II. The SEC also named two other Nelson entities, Plouteo, Inc. and Homaide Real Estate Services, Inc., as relief defendants. According to the complaint, Nelson’s scam enticed hundreds of investors and raised over $25 million from June 2008 through September 2009.
In June 2008, CMHC, based in Dallas, Texas, began offering promissory notes purportedly to raise capital for investment in distressed homes. Nelson, 42 from Fairview, Texas, told investors that he would use the money to purchase these properties at a discount and then renovate or rent them and eventually sell them at a profit. Nelson gathered investors through vigorous internet marketing and a Canadian-based marketing firm. The CMHC notes promised returns of 10% per month for three months. CMHC allegedly raised $15 million from these sales.
In October 2008, Nelson began offering similar notes from Act I and Act II. The Act I notes offered 18% yearly returns for two year investments and the Act II notes 21% yearly returns for five years. These notes also declared that 90% of investor funds would be used to purchase and rehab properties. According to the SEC, Nelson raised at least $10 million from sales of Act I and Act II notes.
Nelson also convinced many CMHC investors to rollover their notes into Act I and Act II notes claiming they were more secure. Nelson also told investors that Act I and Act II would loan money to CMHC in exchange for first lien positions on the properties.
In reality, as alleged by the SEC, Nelson used a majority of the capital raised to make interest and principal redemption payments to earlier investors. He also apparently used about $3.6 million finance his lifestyle, including a $1 million home in Fairview. Also, it appears that $1.2 million was transferred to Homaide.
It appears that CMHC did purchase several properties, but most of them were still subject to prior mortgages and Act I and Act II were at best second in line. Eventually, in the summer of 2009, the scheme crumbled and most of CMHC’s properties were foreclosed on as investor contributions dwindled.
The U.S. District Court for the Northern District of Texas has granted injunctions against all defendants and entered orders to freeze the assets of Nelson and CMHC and to appoint a receiver for these assets.
Source: SEC
Derek A. Nelson, an Oklahoma resident who allegedly operated a Ponzi scheme based on a real estate investment program, has been indicted on charges of securities fraud, theft, and money laundering in Collin County State District Court. The March 25 indictment alleges that Nelson raised $11.9 million from U.S. investors who purchased investment contracts, notes, and other securities. Nelson sold and offered for sale unit shares in a series of programs known as the CMHC Investment Program.
According to the indictment, Nelson failed to disclose that CMHC was not earning sufficient profits from the buying, rehabilitating, renting and sale of profits to make monthly payments to investors. Nelson didn’t disclose to investors in CMHC that some of the profits and principal payments to investors were paid with funds from other investors, and he failed to disclose that investors’ funds paid for his personal expenses and members of his family.
The Collin County District Attorney’s Office has appointed State Securities Board enforcement attorneys Tina Lawrence, Matthew Leslie, and Dale Barron as special prosecutors. Financial examiner Letha Sparks of the State Securities Board is assisting in the prosecution.
IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISION SECURITIES AND EXCHANGE COMMISSION
Plaintiff,
v.
DEREK A. NELSON, CAPITAL MOUNTAIN
HOLDING CORP., SYSTEMS XXI, ACT I, LLC
and SYSTEMS XXI, ACT II, LLC,
Defendants, and
PLOUTEO, INC., HOMAIDE REAL ESTATE
SERVICES CORP. and RG RETIREMENT, INC.
Relief Defendants
Solely for the Purposes of
Equitable Relief
:
:
Civil Action No. 3:09-cv-02222-F
RECEIVER’S STATUS REPORT
(April 1, 2010 through June 30, 2010)
Keith M. Aurzada as Receiver (the “Receiver”) for DEREK A. NELSON, CAPITAL
MOUNTAIN HOLDING CORP., SYSTEMS XXI, ACT I, LLC and SYSTEMS XXI, ACT II,
LLC, (“Defendants”), and PLOUTEO, INC., HOMAIDE REAL ESTATE SERVICES CORP.,
and RG Retirement, Inc. (“Relief Defendants”, and together with the Defendants, the
“Receivership Companies”), hereby files his Status Report.
BACKGROUND
1. Prior to the initiation of the above-captioned action by the Securities and Exchange Commission (“Commission”), Defendants raised at least $25 million through the offering and selling of high yield notes and equity interests. In offering and selling the notes, the Defendants represented to investors that the offerings and proceeds would be used to buy real property at deeply discounted values, and that the properties would be improved, leased, and resold at a profit.
2. As the Receiver has conducted his investigation, it has become apparent that the Defendants’ means for acquiring properties was not to pay cash for the majority of properties. Instead, the Defendants took deeds to individual properties subject to pre-existing mortgage indebtedness. It is unclear what, if anything, homeowners were paid in return for the deeds, other than a promise by Capital Mountain Holding Corp. (“Capital Mountain”) and the other Defendants to make payments due under the individual, property level mortgages.
3. In the summer of 2009, Defendants’ scheme collapsed, payments to investors ceased, and lienholders began foreclosure proceedings on the properties acquired and held by the Defendants. Many of the properties are in dilapidated conditions. Moreover, it is difficult to tell from the Defendants’ records how the properties were acquired, the consideration paid for each of the properties, and the complete transactional history with respect to each property.
4. Since commencing his duties, the Receiver has identified through public record searches most of the lienholders on each of the properties. For each of the last several months, numerous properties have been posted for foreclosure by lienholders who claim to be unaware of this proceeding and the Court’s imposition of a stay of actions against receivership property. Additionally, certain prior owners of properties have attempted to assert ownership rights to properties, through foreclosure or otherwise.