The Securities and Exchange Commission brought charges against Summitcrest Capital Inc., and its principals, Johnny Tseng and Kevin Zhang, for conducting an offering fraud through their real estate investment fund, SC Development Fund LLC.
SC Development Fund raised approximately $19.8 million from about 30 investors in the United States and China between February 2018 and November 2019. The fund filed for bankruptcy in July 2020 and is now defunct.
The SEC’s complaint alleges that SC Development Fund, formerly known as SC Development Fund V LLC, was a real estate investment fund managed by Tseng and Zhang through Summitcrest, which they co-owned. As alleged, SC Development Fund sought investors for its unregistered offering from Chinese-speaking communities in the United States and China.
According to the SEC’s complaint, SC Development Fund represented that it would use investor funds to make real-estate related loans “to the general public” and utilize income from these loans to make promised interest payments and return of capital to investors. The SEC alleges that contrary to these representations, SC Development Fund used investor funds exclusively for loans to Zhang’s real estate development and contracting business, and at least twelve other real estate development entities under Zhang’s control.
In addition, the complaint alleges that Tseng and Zhang misled investors by using investor funds to pay purported finder’s fees to two entities that were supposed to be independent third parties but were in fact controlled by Tseng or Zhang.
The SEC’s complaint, which was filed in the Central District of California, charges Summitcrest, Tseng, and Zhang with violating the antifraud provisions of the SEC. The complaint seeks permanent injunctions, conduct-based injunctions, disgorgement with prejudgment interest, and civil penalties against Summitcrest, Tseng, and Zhang, and officer and director bars against Tseng and Zhang.
Summitcrest and Tseng, without admitting or denying the allegations in the SEC’s complaint, consented, pre-filing, to the entry of final judgments permanently enjoining each of them from violating the antifraud provisions of the SEC; prohibiting each of them from participating in the issuance, purchase, offer or sale of any security. The judgment also ordered Summitcrest to pay disgorgement of $16.6 million plus prejudgment interest of $4.3 million, on a joint and several basis with Tseng and Zhang, and to pay a $2.2 million civil penalty; ordering Tseng to pay disgorgement of $16.6 million, plus prejudgment interest of $4.3 million, on a joint and several basis with Summitcrest and Zhang, as well as disgorgement of $60,000.00, plus prejudgment interest of $15,721.03, on an individual basis, and to pay a $414,366.00 civil penalty; and imposing an officer and director bar against Tseng.