Federal prosecutors have charged Joshua Burrell, chief executive officer of New York-based investment firm Activated Capital, with a number of securities fraud offenses in connection with opportunity zone investments.
Burrell, who was charged with securities fraud, wire fraud, and aggravated identity theft, sought to raise up to $75 million through Activated Capital’s opportunity zone funds, Activated Tax Advantaged Opportunity Fund LLC and Activated Capital Opportunity Zone Fund II LLC, to purchase real estate in economically distressed areas. He was arrested earlier this week in Richmond Heights, Missouri.
The Securities and Exchange Commission announced similar charges in a civil case against Burrell, alleging that over a two-year period, he raised approximately $6.3 million from 14 investors with the majority raised through Activated Capital Opportunity Zone Fund II LLC.
Burrell purportedly touted Activated Capital’s opportunity zone funds for “delivering consistent and stable cash flows” to investors through targeted 8 percent annual distributions.
However, federal prosecutors claim that the funds did not generate enough income on their real estate investments to make those payments, and he used $470,000 of investors’ money to help make up the shortfall “in a manner akin to a Ponzi scheme.” He is also accused of falsely inflating Activate Capital’s assets under management in communications with prospective investors.
Damian Williams, the United States Attorney for the Southern District of New York said, “As alleged, Joshua Burrell solicited investors through a series of lies. While promising investors transparency, he doctored documents and falsely depicted his firm’s finances. Now, Burrell faces prosecution for his alleged crimes.”
According to the allegations in the unsealed indictment, to attract additional investment capital for the funds, Burrell sought to establish a partnership with a Manhattan-based investment bank. As part of the bank’s diligence process, it asked BURRELL for “[b]acking to show current fund proceeds/acquisitions made.”
In response to these requests, Burrell allegedly fabricated documents to make it appear as if the Activated funds were more successful, owned more properties, and were in better financial condition than was actually the case.
For example, Burrell reportedly sent fake bank statements making it appear that, for the period July 2019 through October 2019, one of the Activated funds had ending monthly account balances of between approximately $2.1 million and $2.5 million when the real account statements for that period showed monthly balances of between only $116,400 and $154,400.
He also is accused of fabricating additional documents to make it appear that an Activated Capital affiliate had purchased nine properties in Detroit, when none of the transactions had taken place.
Burrell faces a maximum sentence of 20 years in prison on each of the securities and wire fraud counts and a mandatory sentence of two years in prison on the aggravated identity theft count.