SEC Lawsuit Against Real Estate Crowdfunding Platform iFunding Alleges Fraud Scheme to Misappropriate Investor Funds [u]

The Securities and Exchange Commission (SEC) has filed a complaint against real estate crowdfunding platform iFunding, along with co-founders William Skelley and Sohin Shaw. The complaint alleges that Skelley and Shaw pursued a “fraudulent scheme to misappropriate investor funds.”

CI Senior Contributor and securities attorney Anthony Zeoli commented on the SEC enforcement action:

“Back in early august when the SEC originally issued its subpoena it looked like iFunding’s troubles were centered around insolvency and corporate reorganization. This recent SEC action however  makes allegations which go far beyond those items including misrepresentation, misappropriate of investor funds and outright fraud.  Actions like these were inevitable given the initial explosion of fly by night crowdfunding portals like iFunding and further proof the SEC remains vigilant in sniffing out fraud in the crowdfunding industry.”

According to the SEC, iFunding, from October 2013 to November 2016, raised $3.39 million dollars was from 42 investors in at least 17 states. According to the SEC, $1.17 million of this money was used for personal services and purchases.

The SEC Complaint states:

“From at least October 2013 to November 30, 2016, Skelley and Shah misappropriated investor funds. Skelley and Shah used the debit cards to make numerous purchases for personal items and services. These personal items and services included rent, food, beverages, trips, entertainment, dry cleaning, massages, and withdrawals of cash. None of these purchases or cash withdrawals were for iFunding’s business operations. Skelley’s and Shah’s purchases and cash withdrawals were far in excess of any salary or deferred compensation owed to Skelley and Shah.”

The SEC says that both Shaw and Skelley “knowingly or recklessly” used the funds inappropriately. Skelley allegedly spent more than $1 million on personal expenses and Shah spent over $100,000 of investor funds for personal items.

Additionally, the SEC says that iFunding misrepresented the success of the real estate crowdfunding platform. According to the SEC complaint:

“The December 2014 PPM falsely stated “iFunding has successfully financed over Twenty-Five (25) real estate projects listed on its website, totaling tens of millions of dollars in funds raised.” In fact, as of December 1, 2014, iFunding had successfully financed only twenty three real estate projects totaling $5.1 million. 71. The April 2015 PPM falsely stated “iFunding has successfully financed over Thirty-Five (35) real estate projects listed on its website, totaling tens of millions of dollars in funds raised.” In fact, as of April 16, 2015, iFunding had successfully financed only thirty-three real estate projects totaling $8.3 million.”

At one point in time, iFunding was a high profile entrant into the real estate crowdfunding sector affiliated with prominent names. In April of 2018, iFunding Holdings was officially dissolved.

In 2017, it was reported that iFunding had become insolvent as the SEC issued subpoenas on behalf of the company’s investors and allegations of fraud.

In August of 2017, CI spoke to a representative of Jazco, a company poised to take over the remaining assets of the crowdfunding platform. The spokesperson told CI:

“In my opinion, iFunding was a viable company that was not run in a business like manner. Prior management had not implemented proper financial controls.  They acted like adolescents.”

You may read the SEC Complaint vs. iFunding here.

[Editors Note: a previous version of this article did not accurately represent the SEC allegation of misrepresentation for the number of projects financed by iFunding. The article has been updated with the exact wording of the SEC complaint. We regret any confusion this may have caused]

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