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SEC charges real estate investment company and principals with fraud

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The Securities and Exchange Commission has filed a complaint in a federal district court against The Companies and its principals, Kristoffer A Krohn, Stephen R Earl, and former officer, Michael K Krohn.

The Companies, directly and through related companies and subsidiaries, purchases distressed real estate for investment.

The complaint alleges that to raise money to purchase real estate, The Companies or its subsidiary, Alpha Real Estate Holdings LP, initiated four unregistered offerings of securities from January 2009 to June 2011.

Kris Krohn, Earl, and Mike Krohn participated in the offerings by providing content for and approval of the private placement memoranda (PPMs) used to solicit investors and by directly offering the securities to investors. The four offerings raised a total of approximately USD11.9m from approximately 169 investors. The PPMs contained material misrepresentations and omissions related to, among other things, the value of properties to be purchased or that were owned by the Companies or Alpha LP.

In addition to containing false representations, each of the four offerings relied on the exemption to registration under Regulation D, Rule 506. The offerings did not qualify for the Rule 506 exemption because the defendants solicited investors through general solicitation at meetings that were open to the public.

The defendants consented to entry of judgments against them without admitting or denying the allegations in the SEC’s complaint. Each of the defendants consented to a judgment permanently enjoining them from violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933. In addition, The Companies agreed to undertake to inform all investors in writing of the final judgment, provide audited financial statements, and offer return of consideration for investors who choose to return their securities to The Companies after receiving the written disclosures. Kris Krohn, Mike Krohn, and Earl have also agreed to pay civil monetary penalties of USD75,000 each.

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