It is likely to be weeks or months before the 180 people who put money into American Capital Investments properties learn about the status of the $14.5 million they invested.
Richard Shaffer, the court-appointed receiver placed in charge of the Marina del Rey company earlier this month after the Securities and Exchange Commission complained that the firm was engaging in investment fraud, said it is too early to determine how much money investors might be able to recoup.
“I would expect they’ll lose some. I don’t know how much,” Shaffer said in an interview last week.
In a preliminary injunction delivered orally on Monday by U.S. District Judge Consuelo B. Marshall, Stephen J. Murphy, 44, the president of American Capital, was barred from selling additional securities to investors. His assets remained frozen and in the hands of Shaffer.
A written order containing the details of Marshall’s ruling was not available late last week, but Marshall said it would be “at least as broad” as the Sept. 2 temporary restraining order that initially froze the assets and put a receiver in charge. The directive also was expected to call for a complete accounting of ACI’s financial condition.
“This is a serious fraud,” said Karen Matteson, an attorney in the SEC’s Los Angeles office. “It was important that Murphy not be running ACI anymore in order to protect the investing public from further fraud and misappropriation of their money. . . . It was (Murphy’s) own accountant who couldn’t reconcile $3 million of the funds.”
The SEC, in its Aug. 31 complaint, alleges that Murphy, ACI, and two other people sold unregistered securities in the form of interests in 11 commercial real estate properties, including ones in San Diego and Orange County.
The SEC further charges that Murphy misused and misappropriated at least $7.5 million of the $14.5 million that was invested, made numerous misrepresentations to investors, lied about ACI’s financial condition and engaged in a nationwide “Ponzi-like scheme,” whereby funds paid in by later investors were used to pay artificially high returns to original investors.
According to the SEC, Murphy also illegally solicited investments from everyone who responded to his full-page newspaper advertisements promoting investment books such as “Formerly One Up on Trump” and “Trickle ‘Up’ Economics.”
Murphy contended the SEC was being overzealous and unfair.
“We have here a case where the SEC made a bunch of allegations; the majority are not true,” he said in an interview.
“I made technical mistakes, but not enough to shut down a company. My firm belief is that this is a real-estate investment company . . . not a securities firm (so it) does not fall under the jurisdiction of these jerks.”
“All of our investors were happy up until now,” Murphy continued. “We had met all our obligations. Naturally, now we’re going to have some unhappy investors.”
Murphy said the tendency of court-appointed receivers is to “liquidate the properties at fire-sale prices,” and added, “This will hurt the investors. . . . They’ll either lose money or won’t make as much money as they should have.”
The investors, meanwhile, profess everything from overwhelming support for Murphy to outright fury at the man they felt charmed them out of their money with assurances that they would come away richer.
Abe Van Den Broek, 60, of South Pasadena, is a laid-off engineer. He said he invested virtually all of his savings in ACI properties and, at Murphy’s urging, took out a second mortgage on his house to invest further.
“I was desperate to make money,” he said. “I thought I had a good thing going.” Van Den Broek said that his investment totaled about $140,000 and that he expected to get back more than $250,000 this month.
“I had a lot of faith in him,” Van Den Broek said of Murphy. “His books were impressive. I saw him on television. He was doing a lot of good things for the homeless. He (helped) Mother Teresa. . . . How can this guy be a cheater or a liar?”
But some investors still support Murphy.
“I don’t think the guy is a criminal,” said Matt Humiston, 30, of Redondo Beach, who invested $25,000. ‘I don’t think he intended to steal anybody’s money. Unfortunately, he was running a little fast and loose on how he attracted capital.”
A few investors still want Murphy at the helm of the company.
“The only way to . . . protect the investment is with Stephen Murphy himself--I’ve heard nothing but horror stories on receiverships,” said Lee Barker of San Clemente.
A group of about a dozen formerly homeless military veterans came out to support Murphy at Monday’s hearing. They are participants in a program that he established to provide housing and job training for veterans.
“They’re just accusations,” said Decker Sims, 32, of the charges against Murphy. Sims, a resident of Murphy’s Mar Vista apartment building that houses veterans, said: “Mr. Murphy is a good man. He has made a lot of difference in people’s lives.”
No matter what happens to ACI, Murphy said his shelters--two in Mar Vista and one in Connecticut--will stay open. They are operated independently by his nonprofit American Capital Foundation for the Homeless, he said.