The Jacobsons' attorney, Mark Pugsley of Ray Quinney & Nebeker of Salt Lake City, said his clients "intend to vigorously defend the case."
"Our clients have been cooperating fully in this investigation for several months," he said in an email. "We did not receive notice of this action until late today and are just getting up to speed on the allegations."
Most of the investors were from Utah, with a concentration in Sanpete County and others in Utah and Salt Lake counties, said Ken Israel, who directs the Securities and Exchange Commission office in Salt Lake City that filed the lawsuit.
U.S. District Judge Bruce Jenkins signed an order Thursday that froze assets of the Jacobsons and the company, and requires the preservation of records. It also appoints attorney John A. Beckstead of Holland & Hart as the receiver with control of the involved companies.
The SEC said the case allegedly involves affinity fraud, in which members of a group are solicited for investments because of their shared bonds of trust.
"Wendell Jacobson and Allen Jacobson both belong to The Church of Jesus Christ of Latter-day Saints, and appear to have used their membership and the connections arising there ... to find and obtain the trust of prospective investors," the SEC says in its complaint.
The Jacobsons solicited investors who were told that the operation bought multifamily apartment complexes with low occupancy rates, then rehabilitated them and improved management functions before selling them at a substantial profit in three to five years.
Investors were promised a return of generally 5 percent to 8 percent per year, but were told that Management Solutions' track record had produced returns of up to 15 percent per year, and that a related entity had never done worse than a 13 percent return.
But, according to the lawsuit, the duo commingled funds from all the projects, failed to invest the 50 percent of their own money as promised and falsely said their complexes had never lost money.
Investor monies that were supposed to stay in limited liability companies formed for each project instead were used to pay returns to make it appear the companies were operating at a profit in what's known as a Ponzi scheme, the lawsuit alleges.
"In fact, investor LLCs are experiencing significant loses," the complaint says. "Nevertheless these investor LLCs continue to pay returns to investors, falsely leading those investors to believe their LLCs are operating at a profit."
Israel said the Jacobsons had continued to pay out returns and solicit new investments up until a few weeks ago. Even as late as Nov. 2, an investor put in $2 million, the complaint says.
Israel said the SEC did not receive investor complaints that led to the investigation because investors had been getting paid. He declined to say why the agency initiated the probe.