Defendants: The Companies, LLC,
Kristoffer A. Krohn, Stephen R. Earl, and Michael Krohn
What: This action stems from the alleged
fraudulent offer and sale of unregistered securities for the
purchase of distressed real estate for investment. Allegedly,
"[Defendant] The Companies or its subsidiary... initiated four
unregistered offerings of securities from January 2009 to June
2011." According to the complaint, "the four offerings
raised a total of approximately $11.9 million from approximately
169 investors." The complaint states that the Defendants
established a long-term strategy of purchasing real estate owned
properties or "REOs". The complaint describes an REO as a
"portfolio of homes that have been foreclosed upon and
packaged together to be re-sold by a bank or lending
institution." Allegedly, the Defendants planned to purchase
REOs and "then donat[e] or sell off the homes that were in
complete disrepair, repairing those homes that were worth
repairing, renting the repaired homes for a steady cash flow, and
later selling the homes at a profit when the homes appreciated in
According to the complaint, the Defendants obtained valuations
of the individual properties in Defendant Kristoffer Krohn's
REO, by hiring a third party real estate evaluation company, which
used broker price opinions or BPOs. The BPOs evaluated all of the
properties in the REO at approximately $2.9 million. Purportedly,
the Defendants also used an online software program, RealQuest, to
evaluate the REO properties. The complaint states that the
RealQuest software valuations did not account for the fact that
many of the REO properties "had significant liens or other
encumbrances that exceeded the value of the properties, thereby
giving the properties a negative equity." Allegedly the
RealQuest valuations for the REO properties "totaled
$12,272,986, approximately $9.4 million more than the total of the
The complaint states that "in order to raise money for the
purchase of REOs, The Companies and [its subsidiary] initiated four
private offerings[.]" According to the complaint, multiple
offerings supplied investors with material misrepresentations and
omissions, including the failure "to disclose that [the]
Defendants already knew that [Defendant] Kris Krohn's REO
properties had substantial problems and encumbrances."
Additionally, the Plaintiff alleges that, in more than one private
placement, the Defendants provided RealQuest valuations without
disclosing "the significant limitations to RealQuest
valuations in determining current market value [of real
Based on these allegations, the complaint alleges two causes of
action against the defendants: fraud in the offer and sale of
securities and offer and sale of unregistered securities. The
plaintiff seeks a judgment that the Defendants committed the
violations, an order enjoining the Defendants from engaging in
similar transactions and courses of business, and payment of civil
Where: United States District Court for the
District of Utah
When: August 6, 2012
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