Manhattan Real Estate Fund Manager Charged With Securities Fraud Offenses

 

 Damian Williams, the United States Attorney for the Southern District of New York, and Philip R. Bartlett, the Inspector-in-Charge of the New York Division of the U.S. Postal Inspection Service (“USPIS”), announced today the unsealing of an indictment charging JOSHUA BURRELL with securities fraud, wire fraud, and aggravated identity theft in connection with his operation of a New York-based investment firm, Activated Capital, LLC.  Based on fraudulent representations, BURRELL sought to raise up to $75 million for Opportunity Zone Funds, which are vehicles for making real estate investments in economically distressed areas.  BURRELL touted Activated Capital’s Opportunity Zone Funds for delivering consistent and stable cash flows to investors through targeted eight percent annual distributions.  However, contrary to BURRELL’s claims, Activated Capital’s funds did not generate enough income on their real estate investments to make those payments, and BURRELL used investors’ money to help make up the shortfall.  BURRELL was arrested this morning in Richmond Heights, Missouri, and is expected to be presented tomorrow before United States Magistrate Judge John Bodenhausen in St. Louis federal court.

U.S. Attorney Damian Williams said: “As alleged, Joshua Burrell solicited investors through a series of lies.  While promising investors transparency, he doctored documents and falsely depicted his firm’s finances.  Now, Burrell faces prosecution for his alleged crimes.”

USPIS Inspector-in-Charge Philip R. Bartlett said: “Mr. Burrell’s scheme is unfortunately not an uncommon scam in the investment community. Investors must always check and double check any firm or individual promising guaranteed positive returns to ensure they will not be taken for a ride. It is a good practice for all investors to trust their gut. If it doesn’t seem right, walk away.”

According to the allegations contained in the Indictment,[1] unsealed today in Manhattan federal court:

From in or about 2019 through in or about 2021, BURRELL sought to obtain tens of millions of dollars of investments for the Activated Tax Advantaged Opportunity Fund, LLC, and Activated Capital Opportunity Zone Fund II, LLC (collectively, the “Activated OZ Funds” or the “Funds”) based on fraudulent representations.  BURRELL represented, in substance, that the money invested in the Activated OZ Funds would be used to purchase real estate properties in Opportunity Zones and that investors would receive distribution payments out of the Funds’ net real estate investment income.  Contrary to those representations, BURRELL caused the Activated OZ Funds to pay putative distributions in amounts greater than the Funds’ net income.  From the inception of the Funds in 2019 through approximately February 2021, BURRELL used investor money to help pay distributions totaling approximately $470,000 in a manner akin to a Ponzi scheme.  BURRELL also falsely inflated Activate Capital’s assets under management in communications with prospective investors.

To attract additional investment capital for the Activated OZ Funds, BURRELL sought to establish a partnership with an investment bank headquartered in Manhattan (“Company-1”).  As part of Company-1’s diligence process, Company-1 asked BURRELL for “[b]acking to show current fund proceeds/acquisitions made.”  In response to these requests, BURRELL fabricated documents to make it appear that the Activated OZ Funds were more successful, owned more properties, and were in better financial condition than was actually the case.  For example, BURRELL sent Company-1 fake bank statements making it appear that, for the period July 2019 through October 2019, one of the Activated OZ Funds had ending monthly account balances of between approximately $2,094,450 and $2,463,100 when the real account statements for that period showed ending monthly balances of between only $116,369 and $154,399.

BURRELL fabricated additional documents to make it appear to Company-1 that an Activated Capital affiliate had purchased nine properties in Detroit, Michigan, when none of the transactions had taken place.  The fabricated documents contained identifying information for two individuals that BURRELL used without lawful authority.

JOSHUA BURRELL, 38, of New York, New York, faces a maximum sentence of 20 years in prison on each of the securities and wire fraud counts and a mandatory sentence of two years in prison on the aggravated identity theft count, which must run consecutively to any other sentence of imprisonment.  The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of a defendant would be determined by the judge.

Mr. Williams praised the investigative work of the U.S. Postal Inspection Service.  Mr. Williams also thanked the Securities & Exchange Commission, which brought a separate civil action against BURRELL.

The charges contained in the Indictment are merely accusations, and the defendant is presumed innocent unless and until proven guilty.

[1] As the introductory phrase signifies, the entirety of the text of the Indictment and the descriptions of the Indictment constitute only allegations, and every fact described should be treated as an allegation.