Pinnacle Books Show Evidence That It Raised Over $60 Million

By Zachary M. Seward
From

A court-appointed receiver examining the books of Pinnacle Development Partners LLC has found evidence that the shuttered real-estate investment firm raised more than $60 million in the past year, higher than initial indications, a person familiar with the matter said.

Earlier, in a complaint filed on Wednesday, the Securities and Exchange Commission accused Pinnacle of operating a Ponzi scheme, and said the firm had raised "at least $30 million" from more than 2,000 investors in 33 states. The U.S. District Court in Atlanta shut down Pinnacle's investment operations and put the firm under receivership. The court also froze the assets of Pinnacle and its owner, Gene A. O'Neal.

The SEC said Pinnacle, which promised 25% returns in as little as 45 days from deals in foreclosed real estate, had misled and defrauded its investors. The commission also accused Pinnacle of offering an unregistered security in a national advertising campaign and on its Web site.

Mr. O'Neal's attorney, Michael J. O'Leary, said, "We emphatically deny that Mr. O'Neal or anybody else at Pinnacle was involved in any kind of an effort to defraud the individuals who entered into partnerships with Pinnacle."

Pinnacle investors fretted about whether they would ever receive their money back. "I barely could sleep last night," said Marvin Reyes, an information-technology specialist in Floral Park, N.Y., who invested $25,000 with Pinnacle on Aug. 31. Others, identified as investors in Pinnacle, gathered on an Internet message board and argued over who should get their money back first.

Those decisions -- if any money is recovered -- will be guided by the receiver, S. Gregory Hays, of Atlanta-based Hays Financial Consulting LLC. He was at Pinnacle's offices yesterday, according to an SEC lawyer, and couldn't be reached for comment.

William Hicks, an SEC lawyer in Atlanta, said that Pinnacle appeared to own property but he couldn't say what it might be worth. "Any property or assets that the receiver can collect, I think, would be used after expenses to compensate investors," Mr. Hicks said.

Pinnacle had told investors that it purchased foreclosed properties from banks in Atlanta, performed minor refurbishments and sold them at a profit. But the SEC said that in reality, Pinnacle had transferred the properties from one of its investor partnerships to another, without ever selling to an independent third party.

http://www.realestatejournal.com/