BY SUSAN TOMPOR - July 29, 2009 - http://www.freep.com/
At least 440 investors got swept up in a $50-million-plus real estate deal that turned out to be a Ponzi scheme run out of a Southfield office, according to the U.S. Securities and Exchange Commission.
The SEC said Tuesday it obtained a court order to halt an alleged Ponzi scheme being conducted by John J. Bravata of Brighton and Richard J. Trabulsy of Northville.
The SEC charges that millions of dollars ended up being used to finance exotic vacations, gambling debts and other extravagant items for Bravata and Trabulsy.
Merri Jo Gillette, director of the SEC's Chicago regional office, said in a phone interview that money was raised from investors primarily in Michigan, Ohio, Kentucky and Florida.
She said some investors were seniors or retirees who had taken money out of their Individual Retirement Accounts.
Ruth Ann Boerkoel, 55, invested $500,000 in September 2006, money she inherited from her father. The first she heard about potential trouble was in March when she saw a notice of a cease-and-desist order from Michigan regulators posted on the firm's Web site.
Boerkoel, who works in Royal Oak, said Bravata and Trabulsy reassured her that the money was not lost. The court also ordered a freeze of bank accounts and other assets of Bravata and Trabulsy. A hearing date is set for Tuesday.
Bravata told the Livingston County Daily Press & Argus on Tuesday that the allegations against him and his company are without merit.
"I'm shocked with all the findings of the SEC," the 42-year-old Bravata said. "We're going to fight this with everything we've got."
According to the SEC complaint, investors were promised annual returns of 8% to 12% for membership interests in a purported real estate investment. The money was to be invested through BBC Equities and Bravata Financial Group. The BBC stood for Billionaire Boys Club, according to state regulators.
The SEC alleged that not even half of the $50 million raised since May 2006 through the sale of membership interests in BBC Equities was spent acquiring real estate.
Instead, the SEC complaint charged that Bravata and Trabulsy spent at least $7 million of the investors' money for their own benefit.
The SEC also claims that Bravata and Trabulsy used about $11 million from investors to make Ponzi-like payments to earlier investors.
The SEC began its investigation after the Michigan Office of Financial and Insurance Regulation alerted the government. Michigan's regulatory office had its own investigation of BBC Equities and Bravata Financial Group.
The state commissioner issued a cease-and-desist order in March, after receiving complaints from consumers. The state charged that the companies sold unregistered securities.
Gillette said the SEC is alleging that securities continued to be sold even after the state's cease-and-desist order.
The SEC charged that about $20 million was spent on real estate, but the real estate portfolio is highly leveraged with mortgages and other liabilities exceeding $128 million, and BBC Equities has never been profitable.
Attorneys for the defendants couldn't be reached for comment.