Me & the SEC

Charles Dobens & Family

Charles Dobens & Family

If you have conducted an internet search on my name, you will find a page detailing a press release from the United States Securities and Exchange Commission regarding a lawsuit that they had filed against me, my wife and a business partner accusing us of a whole host of actions. If you scroll down to the bottom of the article, it is only there that it is revealed that the judge found in ours and our investors favor and the end of that court proceeding. Nevertheless, what subsequently transpired was a two year ordeal that I wouldn’t wish on any enemy.

While all of this was taking place, our attorneys advised us against speaking out and telling our side of the story to anyone, friends, fellow investors or even the press. Now that the case has settled, allow me to explain, as Paul Harvey would say, the rest of the story.

In our settlement with the SEC, we agreed not to disparage them in any way. Therefore, what you are about to read is entirely accurate and may seem unbelievable to some. In much of the additional article, actual statements taken from court reports are used to show exactly what happened.

Beginning in 2006, after the sale of my business, my wife and I began acquiring multifamily property. This had always been a dream of mine and what better time to start than the height of the last real estate cycle to get started. Up to that point, we had owned, operated and managed an apartment complex owned by our family. Now, we were branching out and acquiring our own assets.

By  2009, my wife and I had successfully acquired over $15MM in multifamily property. This represented over 600 apartment units throughout the United States. In addition to buying the property, we were setting up our own property management company to run all of our assets on behalf of our investors.

In acquiring these assets, we did everything “by the book” when it came to the securities law. Though I am a practicing attorney, I knew enough to know that we needed counsel to represent us for all our securities work. We choose to work with Jillian Sidoti, Esq. and were very well represented. When knew that when we were discussing deals with prospective investors, we had an accredited investor questionnaire completed. When we discussed a particular opportunity with any investor, we always provided them with a Private Placement Memorandum that was drafted by Attorney Sidoti. All of our investors were either friends of family, accredited or would qualify as a “sophisticated” real estate investor. We knew who we were working with as investors and were comfortable with them as they were with us.

After getting all our properties up and running, my wife and I decided to take a more relaxed approach to our business. We had taken on quite a bit and were stretched pretty thin as it related to our businesses resources. Our objective was to grow our current stable of properties as well as our core businesses organically and not through further acquisitions.

It was about this time, early 2009, that we were approached by a real estate investor who had invested in one of our deals. This investor had put money into one of our early transactions and was very aware of  the success that we were experiencing with our own real estate investments. This person was predominantly a single family home fix & flip investor but had long desired to move into the multifamily arena. He offered to start working with him and begin acquiring  multifamily properties as our partners in future deals.

Our initial reaction was that, though he came across as a savvy investor, he lacked the resources, be it time, money or expertise, to justify a full partnership role.

After further discussions, he sold himself and his role in any partnership as an expert at raising private money as he had done for his SFH business and that he would handle all the money raising for any future transactions. As he stated, we would not have to worry about investors, he would handle all of that.

At that point, we decided to enter into a partnership with this investor and begin acquiring more multifamily property.

It was my responsibility to find investment opportunities, negotiate with the seller and bring any transaction to completion. In other words, exactly what my law practice specializes in. The new “partner” would speak with investors who were interested in investing in any transactions that we were involved in. Everything was working fine until he called me one afternoon, late in 2009, and explained that he had just received a phone call from the Boston office of the Security and Exchange Commission.

Oh really? They don’t call just to say hello. I asked him what they were calling about and he told me that it was in regards to his promotion of our investments. Did you tell them that you were represented by counsel? Yes, but he decided to speak with them anyway. How long did you talk for? Over an hour and a half, he informed me. And? It’s all set, “I took care of it”, he reassured me.

What then transpired was a two year odyssey in dealing with the government that I wouldn’t wish on my worst enemy. The SEC filed a lawsuit against us and ALL of my properties claiming that we had conducted a “Ponzi” scheme and bilked investors of over $3MM. We could not believe what we were being accused of. We had always conducted all of our business activity with the highest level of ethics and followed all aspects of the law to the best of our ability.

Fortunately, while building our business, my wife and I had maintained very strong relationships with all of our investors. This proved to be invaluable throughout the course of events. A group of our investors, seeing the destructive nature of the SEC’s actions as it related to their investments, hired their own attorney to protect their investment from the actions of the SEC.

If you would like to read excerpts from the court transcripts, a friend has put together a very interesting and telling piece that you can read by clicking HERE.

At the end of the day, on a sad note, the other partner/investor lost everything, including his marriage. My wife and I continue to own the properties that the SEC tried to seize and continue to work closely with all our investors working diligently to insure that the properties perform to the best of their abilities and all the investors achieve the goals that they had originally set out to achieve.

At my speaking engagements, I usually take some time to discuss these events and the lessons that I learned from them. At all times, I am open and candid about my experience. Furthermore, as a licensed attorney in the Commonwealth of Massachusetts, I am held to a higher standard than other professions (I know there are many that find that hard to believe among lawyers – but it is true). After reviewing the SEC’s charges and my response to the Bar Counsel, the Board of Bar Overseers took no action against me and I am still a licensed, practicing attorney in Massachusetts.