Indiana Regulator Invokes State Securities Law In Civil Suit Tagging Real Estate Broker With Peddling Crappy Investments In Rental Property, Pocketing $10.7M From Elderly

In Indianapolis, Indiana, the Indianapolis Business Journal reports:

• Three Carmel family members who sold $10.4 million in ownership interests in rental properties to elderly clients are accused by the Indiana Secretary of State’s Office of committing securities fraud.
  
  The office’s securities division this month filed suit in Hamilton Circuit Court against attorney Charles Blackwelder, his son Chad Blackwelder and his daughter Cara Grumme. The three own CFS Inc., which also is named in the suit.
  
  CFS, located in the Village of West Clay, is a licensed brokerage that has provided “real estate investment opportunities” since 1998, according to the company’s website.
  
  The court appointed a receiver Feb. 20 to oversee CFS investor assets and issued a preliminary injunction barring the trio from selling securities pending the outcome of the lawsuit. “The defendants’ actions show that they have and will continue to misappropriate investors’ funds,” the securities division argued in requesting the injunction.
  
  The division wants the three to pay restitution to investors and civil penalties of $10,000 for each part of the Indiana Securities Act they are found to have violated.
  
  According to the complaint, CFS did not register its securities offerings with the state, and Charles Blackwelder, who sold the securities, is not registered to sell them.
  
  Their attorney, Mark Barnes, refuted the allegations by arguing that real estate is not considered a security under the law. “There aren’t any securities present in this case,” he said. “What Chuck did was sell interest in real estate, and real estate isn’t a security.”
  
  Former Indiana securities commissioner Mark Maddox, an Indianapolis attorney who has represented investors in disputes against investment firms for more than two decades, disagreed.
  
  “Lots of real estate investments turn out to be securities,” said Maddox, who is not involved in the case. He cited real estate limited partnerships and real estate investment trusts as examples.
  
  According to the lawsuit, CFS sold $10.4 million in ownership interests in rental properties to investors. The company’s portfolio contains 35 commercial and residential properties in the Indianapolis area valued at $7.1 million, the complaint says. It does not specify how much money investors have lost.
  
  “That is screwing investors right out of the gate, to the tune of almost 50 percent, if I’m reading that correctly,” Maddox said.
  
  Some clients last year began receiving foreclosure notices on at least six properties while several other homes in CFS’s portfolio became overleveraged because the entire equity in the properties had already been sold to previous investors, the suit says.

For the story, see Carmel family members accused of securities fraud.