SEC Alleges Illinois Developer Ran $41 Million Real Estate Ponzi Scheme

The Securities and Exchange Commission has charged a Chicago property developer and his companies with violating federal securities laws based on allegations that a fix-and-flip real estate investment pitched to hundreds of investors was in reality a $41 million Ponzi scheme. Glenn C. Mueller, 72, and seven entities were named as defendants in an action filed by the Commission in a Chicago federal court on Thursday, September 5, 2019. In addition to seeking the standard injunctive relief, disgorgement of ill-gotten gains, and civil monetary penalties, the Commission has also requested the appointment of N. Neville Reid as a federal equity receiver to take control of Mueller’s entities and marshal assets for the benefit of defrauded victims.

In addition to Mueller, the Commission’s Complaint also named Northridge Holdings, Ltd., Southridge Holdings, Ltd., Eastridge Holdings, Ltd., Brookstone Investment Group, Ltd., Guardian Investment Group, Ltd., Unity Investment Group I, Ltd., and Amberwood Holdings, L.P. as defendants. According to the Complaint, potential investors were told that Northridge was in the business of buying and improving undervalued or mismanaged multi-family residential buildings. The company touted its “nearly 50 years” of real estate business expertise, with its recent February 2019 marketing materials claiming to operate 11 different properties with 935 total units.purchased with a total of $57 million.

Beginning no later than May 2014, Northridge began offering “real estate promissory notes” that paid annual interest of 3% until the funds were invested in a specific property. At the same time, the company also began selling promissory notes characterized as “CDs” or “CD loans” carrying terms ranging from one year to five or more years and annual interest rates ranging from 3% to 6% depending on the note term. Mueller also promised higher interest rates to certain noteholders who invested a larger amount or agreed to a longer note term. From at least May 2014 to April 2019, the Defendants sold at least $41.6 million in promissory notes to 319 investors across 32 states.

As is increasingly common in alleged investment frauds, the Complaint highlights Mueller’s appeal to potential investors based on charitable and religious beliefs by, for example, touting the presence of a church-sponsored resource center located at a large Northridge apartment complex. A Fall 2016 newsletter sent to investors again promoted the church and concluded by saying,

“Your investment in Northridge is growing financially and I believe God rewards those who help others in need. You are benefitting [sic] from both areas. Thank you for working together with us to make this a good investment.”

Northridge’s marketing materials told potential investors that their funds would be used to buy and renovate real estate assets, that each loan was secured by “any and all of the properties and their cash flow,” and the ensuing cash flow would “back up the promissory notes.”

But, the Commission alleges, Mueller and Northridge made numerous misrepresentations to investors in the course of operating a Ponzi scheme that depended on the inflow of new investor funds. When Northridge’s cash expenditures began to exceed the company’s cash inflows, it began using new investor funds to make interest and principal payments to existing investors. The Commission also claims that Mueller diverted nearly $2.5 million in investor funds to trade stocks and options and to make loans to family members. After Mueller learned of the Commission’s investigation in March 2019, he allegedly solicited two new investments totaling $650,000 and used a significant portion to make Ponzi payments, pay legal fees, and to settle a lawsuit involving two previously-purchased properties. Mueller also invoked his Fifth Amendment rights against self-incrimination when subpoenaed for testimony by the Commission.

The action comes almost exactly a year after the Commission filed charges against a separate Chicago-based real estate investing company on charges it was operating a $135 million Ponzi scheme.

The charges also mark the latest scheme discovery in what has been an active 2019. In a recent Ponzitracker analysis of Ponzi scheme discoveries in the first half of 2019, the number of schemes discovered was nearly statistically identical from the same period in 2018. However, the average and median scheme size in the first half of 2019 was nearly double and triple, respectively, from the same period in 2018, perhaps indicating that schemes have recently been able to raise money at a quicker clip.