A federal judge has frozen the assets of a Bakersfield-based investment company following a U.S. Securities and Exchange Commission investigation into alleged fraud by the organization’s leader, a former county appraiser who court records say raised $11.6 million from 400 individuals as far away as New York and Hawaii.
Fresno Judge Lawrence J. O’Neill signed a temporary restraining order Friday citing a “reasonable likelihood” BIC Real Estate Development Corp. owner Daniel R. Nase, head of the Bakersfield Investment Club, broke or is breaking federal securities law, or that he will do so unless the court intervenes.
A civil lawsuit the SEC filed Friday accuses Nase of running a “constantly evolving fraudulent scheme” that misappropriated millions of dollars of investor funds for his personal benefit. Nase’s wife, Margarita, is also named as a defendant in the case.
The SEC alleges that although Daniel Nase transferred misappropriated assets back to the club, he inappropriately credited himself for the transactions in a way that diluted other investors’ shares in the company.
The SEC complaint does not constitute criminal charges.
The lawsuit says a club “liquidation plan“ Daniel Nase proposed in January, almost a year into the SEC investigation he apparently cooperated with, would have given investors ”assets of questionable value“ — mortgaged rental properties and an oil company owned by the club.
Under the liquidation, Nase would have received more than $6 million worth of BIC’s assets, even though he had invested ”less than $425,000 of his own cash in the enterprise.”
Investors were allegedly harmed when their shares in the club were watered down by Nase’s supposed contributions to the fund. In fact, the SEC says, the money he credited himself with investing was actually owned by the company.
The agency’s lawsuit says one investor learned his $50,000 equity stake dropped to $6,300 in January and February of this year. When the investor asked about the reduction, Nase allegedly told him it was an “accounting adjustment” that would likely be made up in an upcoming bonus check.
Daniel Nase did not respond to a request for comment Monday. But his Los Angeles lawyer, Scott Vick, filed a court document Monday saying everything Nase did was disclosed to investors, and that he had relied on the legal opinion of his Bakersfield attorney, who was not identified.
“(Nase) cannot be accused of misrepresentations or fraud when investors were told the truth, and when he complied with his agreement with them,” Vick wrote in Monday’s filing.
REAL ESTATE BACKGROUND
Nase incorporated BIC Real Estate Development in 2013, the same year he left the Kern County Assessor’s office, where he had worked as an appraiser since July 2011. Nase said in a promotional video posted on YouTube he had been a real estate investor for about 16 years.
In the video, Nase said he started buying residential properties with his father after the real estate crash, and that he invited his wife’s family to join their investment activity. This led to the company’s founding and the establishment of an office at 8800 Stockdale Highway, across from Cal State Bakersfield.
Court papers say the stated business was to “purchase, own, rent or flip real property.” The SEC says the company also bought interests in consumer loans through the website LendingClub.com.
Daniel is BIC’s president and chief executive officer, as well as managing shareholder and a director, according to the SEC lawsuit, while Margarita is chief operating officer and a director. Vick, their attorney, said the company is now closed.
Doing business as Bakersfield Investment Club, and later as Los Angeles Investment Club, San Diego County Investment Club and other names, BIC began soliciting investors in 2013, according to the SEC complaint.
The company in some cases reached out to people one-on-one, and in other cases contacted them through trade shows and social media, the lawsuit says. The company also had a publicly accessible website, bakersfieldinvestmentclub.com, which is now closed.
The company was not registered with the SEC. The lawsuit says BIC satisfied the requirement for individuals to become accredited investors by appointing every potential investor a director “whether they invested or not.”
Nase used investor money to buy 55 different properties, all in Bakersfield, and had all or part of the properties’ title put in his name, his wife’s name or that of their shared trust, BIC Solo 401k Trust, the SEC’s complaint alleges. It says only one property purchased with investor funds was recorded in BIC’s name.
Between August 2013 and May 2015, according to the lawsuit, the total value of real estate misappropriated by Nase came to $4.9 million in investor money.
The SEC issued a subpoena to Daniel Nase in April 2015 to gather testimony on its investigation of BIC. Between that time and his testimony to the agency a few weeks later, Nase transferred to BIC all but three properties held, at least in part, in his or his wife’s name, according to the lawsuit.
In carrying out the transfers, the SEC alleges, Nase credited himself about $1 million in club equity, asserting that amount represented the appreciation in value between the time of the purchase and the transfer, multiplied by his ownership share.
At about the same time, Nase credited himself about $211,000 based on rent the company had collected on the transferred properties, the complaint states. It says he also transferred three more properties bought with investor money to his and Margarita’s trust account.
In June of last year, Nase allegedly mortgaged 27 properties fully owned by BIC, generating more than $2 million. He then transferred about $3.08 million from BIC’s bank account to the Nases’ trust account, the lawsuit charges.
OIL COMPANY PURCHASE
The SEC alleges this money, combined with $703,000 from the trust, funded a stock purchase and sale agreement under which a company BIC Solo 401k Trust owned, WM Petroleum, bought all the outstanding shares of a company called Target Oil & Gas Drilling Inc. It says WM Petroleum and Target Oil were then transferred to BIC under an arrangement that gave Nase a $2.75 million credit in the investment club.
The liquidation plan Nase proposed would give him personal ownership of the oil company, according to the lawsuit.
“Thus, Nase mortgaged BIC’s assets to generate cash, misappropriated BIC’s funds to his personal trust and used the stolen money to buy an oil company for his trust,” the complaint reads.
The lawsuit alleges Nase also misappropriated investor money by putting a net $480,000 in BIC funds into his personal account at LendingClub.com. It says transfers from BIC’s bank account to LendingClub.com were “virtually simultaneous” on at least two occasions.
The SEC’s complaint says Nase used BIC money to pay at least $84,000 of his personal expenses. It says his job at the club paid $80,000 a year, and Margarita’s paid the same.