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Federal regulators have filed a lawsuit alleging an Orem real estate investment company took in nearly $12 million from 169 investors while duping them over the value of properties to be purchased and the financial health of their operations.
The Securities and Exchange Commission complaint names Kristoffer A. Krohn, 32, Orem, the president and majority shareholder in The Companies; CEO Stephen R. Earl, 43, Orem; and Krohn's brother, Michael, 36, a CPA from Round Rock, Texas, who was chief financial officer.
All three men named in the lawsuit agreed to a settlement before the action was filed on Monday.
While not admitting guilt but agreeing not to deny the facts of the case, the defendants have consented to pay $75,000 each in fines and not engage in further violations of U.S. securities laws.
Their attorney, Brent R. Baker of ClydeSnow of Salt Lake City, said the trio believed the settlement was best for them under the circumstances.
"After a comprehensive investigation and full cooperation by my clients with the SEC, they have been allowed to settle this matter without admitting to any wrongdoing," Baker said in a statement. "In fact, the SEC's Complaint does not even allege intentional violations."
Under the settlements, The Companies also is required to notify all investors of the settlement, provide them with audited financial statements and offer them their money back.
Kristoffer Krohn and Earl formed The Companies in 2008 as an umbrella entity over other businesses, which included the Real Estate Investors Club. The Investors Club required members to pay a fee of about $8,000 to receive instruction and help in purchasing properties that could be rented out and later sold for a profit.
The Companies also solicited investors through "Wealth Summit" seminars. The monies raised were to go toward bulk purchases of homes from banks but, the SEC says, that in materials given to potential investors, the three men greatly inflated the values of the properties to be purchased.
The Companies used a valuation figure of $15 million from an online service called RealQuest, which never inspected the properties and valued them by address and other measurements but not on actual area sales information, the complaint says.
The Companies also obtained valuations from a company called Capstone Asset Solutions, which used real estate agents in local markets to inspect and evaluate each property. In preparing documents for potential investors, the three used RealQuest's $15 million valuation but didn't mention Capstone's valuation of around $2.9 million.
The offerings also failed to disclose the true financial conditions of the companies involved and that the securities for sale were not registered with the SEC as required by law, the complaint says.
But Ken Israel, the regional director in the agency's Salt Lake City office, said there were no allegations of personal misuse of investor monies.
"It's not a situation where the principals of the firm spent a bunch of the money on personal expenses," he said. "Basically what they got were their salaries.