Sunwest Management sued by the SEC as a Ponzi scheme

As it was expected by many observers the government continues the series of investigations into the financial frauds that became conspicuous as a result of the worldwide plague of economy downturn. The Securities and Exchange Commission charged Sunwest Management and its former chief executive with securities fraud on Monday, reports Reuters. The retirement home operator allegedly deceived investors operating its business in the nature of a Ponzi scheme.

Oregon-based Sunwest that operates over 200 U.S. retirement homes along with its former CEO Jon Harder are incriminated to the risky investments with exposing the investors to high losses. Within the period of 2006-2008 the company received from investors at least $300 million which were used for down payments on approximately 100 retirement homes with the balance financed by institutional lenders and banks.

The suit filed to the U.S. District Court of Oregon says that investors were explained that they were buying an ownership interest in a specific retirement home that would generate enough profit to pay a 10% annual return. Yet, half of the properties lost money. But Sunwest deceived its customers by paying them from the cash raised through commingling retirement home assets. The returns that were paid to the investors were generated from other sources, refinancings, loans from Harder and Harder's friends, and from funds raised through offerings to new investors.

The SEC’s complaint states that Sunwest concealed from its investors the fact that the company was run as a single enterprise with its fortunes tied to the success of hundreds of properties and dependant on future financing ability. According to the lawsuit by June 2008 the project was operated as a Ponzi scheme with the money paid to the older investors from the cash invested by the new customers. The SEC reports that by January 2009, more than 100 Sunwest retirement homes were placed in foreclosure, receivership or bankruptcy.