Joseph Financial Hit with Class Action Over Alleged Role in EquiAlt Ponzi Scheme

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Joseph Financial, Joseph Financial Advisors and Robert Joseph Armijo face a proposed class action lawsuit over their alleged solicitation of consumers to invest in the EquiAlt LLC Ponzi scheme. 

The 25-page lawsuit says that before the U.S. Securities and Exchange Commission shut down the scheme in February 2020, EquiAlt managers paid the Joseph Financial defendants undisclosed commissions for their help in raising roughly $170 million through the sale of unregistered EquiAlt securities to consumers across several states. 

According to the suit, this was done under the guise of a purportedly registration-exempt “private offering” of EquiAlt securities. To be exempt from federal registration under SEC rules, securities may not be marketed through general solicitation or advertising, and the issuer must take reasonable steps to verify that a purchaser of a security sold in an offering is an accredited investor, the case states. 

Moreover, if any non-accredited investors participate in an offering, the company conducting the offering must give them financial statement information as specified by SEC regulations. 

The lawsuit alleges the defendants failed to comply with any of the aforementioned requirements when they offered and sold millions of dollars’ worth of EquiAlt securities. A large percentage of EquiAlt investors were elderly, and many of them invested the bulk of their life savings in the unregistered securities, the case states. 

“Defendants at all times knew that the offering documents and other solicitation materials they were using to solicit and sign-up investors for the EquiAlt Securities contained misrepresentations and material omissions regarding the non-payment of commissions, rendering the EquiAlt Securities not exempt from registration under Rule 506 despite contrary statements in the offering documents,” the complaint alleges. 

Per the case, the defendants marketed the EquiAlt securities through general solicitations, including cold calls and dinner presentations, and received and accepted sales commissions that they either concealed or mischaracterized as “finders’ fees” to hide the true nature of the payments. Further, the defendants, according to the complaint, sold EquiAlt securities without making reasonable efforts to verify the offerees’ actual status as accredited or non-accredited investors. Lastly, the defendants failed to supply non-accredited investors with the requisite EquiAlt financial statements because “EquiAlt admittedly did not have any financial statements to give them,” the complaint says. 

“Defendants meanwhile received steep 10-14% commissions paid directly from the investors’ funds,” the lawsuit alleges. 

The lawsuit states that EquiAlt was placed into a liquidating receivership three days after the SEC filed an action in which it alleged the real estate investment trust’s managers operated EquiAlt as a Ponzi scheme and repeatedly ran afoul of federal securities law. 

The case looks to represent all individuals and/or entities who purchased an EquiAlt security through Joseph Financial, Joseph Financial Advisors or Robert Joseph Armijo and have suffered a net loss from that investment. 

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