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FOUNTAIN GREEN, Sanpete County — FBI agents closed a prominent real estate management business here Thursday and began removing documents pertaining to the investigation of what the U.S. Securities and Exchange Commission calls a “$220 million Ponzi scheme.”
The SEC claims Wendell and Allen Jacobson used their LDS Church membership to gain the trust of investors.
SEC agents also removed documents from the home of Wendell Jacobson, 58, owner of Management Solutions, who lives across the street from the company’s headquarters.
Federal Judge Bruce S. Jenkins granted an SEC request for a restraining order against Jacobson, and its request that Management Solutions’ assets be "frozen" while their investigation is under way.
A statement by the SEC says Jacobson, and his son Allen, 33, “offer investors the opportunity to share ownership of large apartment communities in eight states," but instead "are merely pooling the money raised from investors into large bank accounts from which they are siphoning money to pay family expenses and the operating expenses of their various companies.”
Wendell and Allen Jacobson misled investors to believe they were financially supporting what was portrayed as a widespread and reputable operation to revamp apartment communities and turn a significant profit.
A civil complaint filed in U.S. District Court alleges the Jacobsons have been engaged in fraudulent practices since at least 2008 and says the father and son “appear to be using their membership" in The Church of Jesus Christ of Latter-day Saints to make connections and win over the trust of prospective investors. Wendell Jacobson is bishop of a Snow College student ward.
"The Church of Jesus Christ of Latter-day Saints encourages its members to be honest in their dealings and conduct themselves with integrity," church spokesman Scott Trotter said Friday. "When someone preys upon the members of a congregation or community in order to get personal gain, it is a reprehensible betrayal of confidence, and its perpetrators are rightfully subject to criminal prosecution."
The father and son “raised more than $220 million from approximately 225 investors through a complex web of entities under the umbrella of Management Solutions, Inc.,” the SEC alleges.
“Wendell and Allen Jacobson misled investors to believe they were financially supporting what was portrayed as a widespread and reputable operation to revamp apartment communities and turn a significant profit,” said Ken Israel, director of the SEC’s Salt Lake Regional Office. “Their promises were anything but truthful.”
FBI agents combed through the records of Management Solutions through the night and into Friday morning. Vans were on hand to haul off documents.
The SEC says the father and son “used alleged ‘sales’ as a means of shifting investors into and out of certain properties.” It says most investments were funneled into a “clearing house” corporation known as Thunder Bay Mortgage Company.
In some instances, the SEC alleges, the Jacobsons bought properties they had supposedly sold for a profit with another shell corporation. They also allegedly moved their money into joint accounts to make it appear to investors they were committing their own capital to a project, only to quickly transfer the money back to their own account.
The SEC complaint alleges investors in four of the Jacobsons' corporations received a “6 to 8 percent” return on their investments, though the combined income from the corporations was $32,200. Those corporations' expenses over the period they supposedly profited were $1.3 million.
The complaint argues that Thunder Bay is insolvent. "As of Dec. 31, 2010, Thunder Bay owed investors and investor LLCs more than $103 million. As of the same period, Thunder Bay showed a net loss of over $2.2 million. Having no actual operations, Thunder Bay relied almost entirely on new investor funds as its source of funding. Without these new investor funds, Thunder Bay would immediately cease operation.”
Wendell Jacobson and his brothers Gene and Evan financed the construction of a 21,000 square foot office in the farming community of Fountain Green in 2008.
Wendell Jacobson is the former chairman of the Sanpete County Republican Party. Gene Jacobson is the chairman of Sanpete County’s planning and zoning commission. Neither have been charged in connection with the case.
Calls to the Jacobsons were not returned. Mark Pugsley, the Jacobsons’ attorney, told Bloomberg Businessweek that the two men have cooperated fully in the investigation and intend to “vigorously defend the case.”
Story written by Christian Probasco with contributions from Alex Cabrero.