Affinity Fraud Scheme Targets Elderly Through Real Estate Investments
For decades, many people have perceived real estate investments as a “safe” place to invest their hard earned money. There is also a common tendency to feel safer investing money with people that close friends and community members recommend. Unfortunately, some unscrupulous financial advisors use this knowledge to prey on groups of people, especially the elderly. They typically earn the trust of these investors by joining their groups and befriending one or more of the community leaders. This type of scheme is known as “affinity fraud”.
Between 1996 and 2004, Mark Palazzo, Edward Tackaberry, Pittsford Capital Income Partners, LLC, and other related entities engaged in just such a scheme. Palazzo and Tackaberry raised at least $15 million from approximately 275 investors. Many of these investors were senior citizens. They were told that in exchange for promissory notes, their money would be invested in various real estate investment companies. These companies were owned and managed by Palazzo and Tackaberry.
The U.S. Securities and Exchange Commission (the “SEC”) charged Palazzo, Tackaberry, Pittsford Capital Income Partners, LLC, and affiliated entities with violating the Securities Exchange Act of 1934. The SEC stated that the defendants had specifically targeted senior citizens and retirees as part of their fraudulent scheme. In addition, the SEC alleged that the defendants made the following misrepresentations and omissions regarding their victims’ investments:
- Failing to disclose that their investments were used to make large transfers of money, including a $2.4 million payment to an entity that had significant ties to Tackaberry and Palazzo.
- Failing to disclose that large transfers of money would be made to Palazzo directly.
- Failing to disclose that the assets of the real estate investment companies would be co-mingled in one bank account.
- Failing to disclose that the money in this bank account would be used to fund the operations of only some of the real estate investment companies.
- Misrepresenting that some of the real estate investment companies would have an independent third-party agent to “represent investors’ interests in connection with the offerings.”
To prevent further damage and protect victims, the SEC sought emergency action, including a temporary restraining order that would freeze the assets. They also asked that a temporary receiver be appointed over the companies and their affiliated entities. In addition, the SEC sought orders that would prevent the defendants from committing future violations of securities laws, require them to return ill-gotten gains, and impose civil penalties.
For more information about this and other affinity scams, contact an experienced securities fraud attorney today.