New Mexico Real Estate Magnate Charged in $80 Million Ponzi Scheme

admin —  March 26, 2010 — Leave a comment

Douglas F. Vaughan, and his company, The Vaughan Company Realtors, New Mexico, have had charges filed against them and have been ordered to halt their $80 million Ponzi scheme.

The complaint, filed in federal court in Albuquerque, New Mexico, alleges that Douglas F. Vaughan through his company, The Vaughan Company Realtors, issued promissory notes that he claimed would generate high fixed returns for investors. Vaughan also used another entity, Vaughan Capital LLC, to solicit investors for different types of real estate-related investments, such as buying residential properties at distressed prices. Vaughan relied entirely on new money raised from investors through both companies to fund Vaughan Company’s ever-increasing obligations to note holders.

According to the SEC’s complaint, Vaughan defrauded approximately 600 investors, promising them high, fixed interest payments ranging from 10 to 25 percent over one to three years. He misrepresented that the aggregate principal on the Vaughan Company notes would not exceed a certain limit. Vaughan falsely claimed that the notes were “secured” by certain real estate and his personal wealth, and that Vaughan Company used investor funds to generate profits well in excess of its obligations on the notes.

The SEC’s complaint alleges that Vaughan’s failing business accumulated losses totaling more than $61 million, and the $80 million in principal owed to investors is 20 times the claimed equity in the properties that were to secure the notes. The SEC also alleges that Vaughan’s net worth, which was supposed to provide protection to investors, is negative in value. In direct violation of promises made, Vaughan transferred almost all of the money he raised from Vaughan Capital investors to Vaughan Company’s operating account. He then used those funds to cover Vaughan Company’s obligations to promissory note holders and its ordinary business costs.

The SEC’s complaint charges the defendants with violating the securities registration and anti-fraud provisions of the federal securities laws, and charges Vaughan and Vaughan Company with acting as an unregistered broker-dealer. The complaint seeks permanent injunctions, disgorgement of ill-gotten gains and financial penalties

The SEC also charged both of Vaughan’s companies in the enforcement action. Neither Vaughan nor his companies are registered with the SEC to offer securities under the federal securities laws.

Vaughan exploited his prominence in the Albuquerque business community to add legitimacy to his scheme and lure investors,” said Donald M. Hoerl, Director of the SEC’s Denver Regional Office. “When the scheme unraveled, Vaughan hid behind the economic downturn and blamed the poor real estate market for his demise.”

The Honorable M. Christina Armijo for the U.S. District Court for the District of New Mexico granted the SEC’s request for a temporary restraining order and asset freeze against Vaughan and his companies.

The SEC’s investigation is ongoing.

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