SEC Charges Firm, Founder in Opportunity Zone Fund Scam

The Securities and Exchange Commission has charged the founder and managing principal of Activated Capital LLC with defrauding at least 14 investors in a purported opportunity zone fund scam.

According to the SEC’s order, Joshua Burrell defrauded at least 14 investors who invested at least $6.3 million in Activated private real estate funds.

Approximately $6.1 million of the amount was invested by 12 investors in the Activated Capital Opportunity Zone Fund II LLC.

In approximately January 2019, Burrell and Activated Capital began marketing investments in the funds to investors and “made a number of material misrepresentations concerning the funds and specifically Fund II,” the order states.

The funds purport to invest in “opportunity zones,” a community development program established by the 2017 tax overhaul.

Fund II’s operating agreement stated that it would purchase properties in the name of the funds for investment purposes, the order states. “Instead, however, in many instances, Burrell, through Activated, misappropriated investor funds by purchasing the properties in the names of other Activated entities that Fund II did not own.”

Second, marketing materials and operating documents contained material misrepresentations concerning the funds’ payment of distributions to investors.

“Specifically, Defendants represented that the Funds would pay distributions to investors that would be funded by cash available from operations — that is, income generated by the underlying properties,” the order states. “Instead, the Defendants engaged in Ponzi-like conduct, making distributions to investors that were funded, in part, with investors’ money.”

Third, marketing materials and operating documents falsely represented that Fund II would have an outside custodian and that Activated’s principals had made significant investments in Fund II.

“In fact, Fund II had no outside custodian, and Activated’s principals had not made significant investments in Fund II,” the SEC said.

Finally, defendants “falsely represented to at least one investor that Fund II had ‘just under’ $20M in assets under management,” according to the order.

“In fact, at the time, the fund had raised less than $6 million from investors,” the order states.

Burrell also misappropriated approximately $100,000 of investor funds, “most of which were categorized as ‘property improvement’ expenses,” the SEC said.