How Not to Raise Private Money
July 14, 2010 
6 Comments
I just read story on BusinessWeek.com about a Utah guy that’s being sued by the SEC for $145 million. Here’s the excerpt because you would think that I was just making it up..
The Securities and Exchange Commission sued a Utah man for falsely telling customers their $145 million would be invested in commercial real estate while instead directing funds to other ventures, including a sandwich- in-a-can business.
Travis Wright, 47, sold promissory notes for his Waterford funds to about 175 investors from 2001 to 2009, the SEC said in a lawsuit filed at U.S. court in Salt Lake City yesterday. Wright used only $6 million of investor money in a manner consistent with his promises, the agency alleged.The SEC said Wright, who used more than $15 million of clients’ money to pay for a “lavish” lifestyle for himself and his friends, told investors he would use their funds to make loans secured by liens on commercial real estate. Of 20 investments, about five were made in accordance with his promises, according to the lawsuit.
Instead, Wright invested funds in other ventures, including a company that wanted to develop a sandwich in a can to be sold in vending machines, a company that sold watches over the Internet, a company that sold rose petals with sentiments printed on them, and a company, owned by Wright and his brother, that owned the rights to a film about a Boy Scout pinewood derby car race.
Private money, pooling and syndication lessons contained herein:
1. Invest in what you SAY you’re going to invest in.
2. Don’t use your investors’ money to support your poser lifestyle.
3. If you are the guy responsible for the sandwich in a can then you deserve a huge fine AND jail.
Damn.
Someone beat me to the Sandwich in a Can! I’ve been sitting on that idea for several years now…
OMG!! Sandwich in a can … how could that NOT be a hit? He was totally doing his clients a favour when he put their money into that venture over the commercial real estate.
Wow, another Madoff. But if we are all not careful with how we direct funds (even on a smaller scale) we could get in trouble too. Great lesson!
I always use private money, but I always have a contract between myself and the lender. This protects both of our buts. Mainly I like to use RRSP money which is safer for the investor because it is registered against the property as well therefore their money is protected.
Well, I would hope so. LOL!