SEC Halts Alleged 1031 Exchange Ponzi Scheme
The Securities and Exchange Commission has filed an emergency action to halt an alleged offering fraud perpetrated by Susan Werth, a.k.a. Susan Worth, and several companies she controlled, including Corporate Mystic LLC, Commercial Exchange Solutions Inc., and Exchange Solutions Company.
The Securities and Exchange Commission has filed an emergency action to halt an alleged offering fraud perpetrated by Susan Werth, a.k.a. Susan Worth, and several companies she controlled, including Corporate Mystic LLC, Commercial Exchange Solutions Inc., and Exchange Solutions Company.
According to the recently unsealed complaint, Werth and her companies raised more than $26 million, and promised investors that she would use their money to fund short-term, high-interest rate loans in connection with tax-deferred real estate projects.
Since at least 2015, she has marketed herself and her firms as facilitators of Section 1031 exchanges, also known as like-kind exchanges, which allow investors to defer paying capital gains taxes on investment property sales by reinvesting the proceeds into a similar investment property within a specified time frame.
Werth allegedly used approximately $24 million of the $26 million she raised to make Ponzi payments to earlier investors, and the remaining $2 million she spent on her personal expenses. The securities were never registered with the SEC.
The SEC said that Werth and her companies used forged bank statements to assure investors that the companies had assets sufficient to guarantee the payments to investors. The regulators also claim that she concealed her criminal history and the previous lawsuits against her.
In 2013, Werth was convicted of felony theft and elder abuse and ordered to pay approximately $235,000 in restitution. She was also the subject of a civil default judgment in California in connection with a $400,000 fraud in 2013, and a $300,000 fraud in Pennsylvania one year later.
Earlier this month, the SEC obtained a temporary restraining order which enjoins the defendants from continuing to violate federal securities laws, imposes an asset freeze, orders an accounting, and prohibits the destruction of documents.
The SEC is seeking injunctions against future securities laws violations, disgorgement of the defendants’ ill-gotten gains, and civil penalties.
