Real Estate Flipper Sued For Investment Fraud

February 8, 2017

Flipping real estate is all the rage.  If you have nothing else to do, spend a few hours watching all the flipping shows on cable. Flip this. Flip that. Flop the other. It's hilarious when some idiot budgeted $20,000 on a ramshackle mess and is then shocked -- shocked, I say -- to learn that the foundation has termites, the chimney needs to be rebuilt, the roof leaks, and the wiring hasn't been up to code for several decades. Then we go to commercial. Then we come back to the hosts rescuing the project. Scene, camera, and action!  It's all so real but for the fact that the house should be condemned, the home inspection guy sued, and the flippers would typically lose every cent of their investment, wind up owing the contractors, get foreclosed upon by the bank, and find themselves owing lots of fees and taxes. Ain't flippin' fun?

In today's Blog we consider an entrepreneur -- I mean, you know, almost everyone who is involved in any business venture on TV these days is called an "entrepreneur." Any how, we got our entrepreneur, who got his hands on about $1 million from far too many gullible investors, who ponied up the bucks for unsecured promissory notes. Yeah, "unsecured," as in "are you nuts?" And what was the irresistible spiel from our entrepreneur? You guessed it:  He's gonna flip the investment funds from the notes into big bucks after selling the renovated properties for a profit. At first, you would have apparently invested through a company already in the flip biz; but later, when our entrepreneur seems to have figured out the angles, our investment genius goes out on his own.

Let's Get This Party Started!

From 2002 until the end of 2011, Patric Ken Baccam, a/k/a Khanh Sengpraseuth, 45, a resident of Highland, California, was a registered representative with Centaurus Financial, Inc. ("Centaurus").

  • In July 2011, Baccam purportedly registered Prim Group LLC in California, and he is that company's sole member, owner, and service agent. As part of his fundraising activities, in December 2011, Baccam allegedly sold one promissory note issued by Prim Group.

  • In May 2012, Baccam purportedly registered Precision Research Group LLC in California, and he is that company's sole control person and operator.  On its registration forms, Precision allegedly disclosed Baccam's wife and niece as Managing Members but there appears to be a question as to whether they exercised any control or served in any role. From February 2012 (purportedly three months before the Precision Research was registered!) to July 2013, Baccam allegedly sold eight promissory notes issued by Precision Research.

Are You Flippin' Crazy?

By now,you have likely figured out that given the use of such terms as "allegedly" and "purportedly," that the Blog is covering a lawsuit. Indeed, your suspicions are correct. Securities And Exchange Commission, Plaintiff, v. Patric Ken Baccam, a/k/a Khanh Sengpraseuth, Defendant, AND Precision Research Group LLC, and Prim Group LLC, Relief Defendants (Complaint, 17-CV-00172 / January 31, 2017).

NOTE: A Complaint merely contains allegations and a defendant is presumed innocent unless and until found guilty by a preponderance of the evidence in a court of law.

The SEC's Complaint but is very well written and my quirky take on things can't improve on the pleading's presentation. That being said, note my annoying and petty comments by way of annotations in the form of "Bill Singer's Comment." As set forth in the "Summary of the Action" section of the SEC's Complaint:

4. From October 2010 through July 2013, Baccam repeatedly violated the Federal securities laws in raising approximately $963,000 through the offer and sale of 28 unsecured promissory notes to 18 investors by making numerous material misrepresentations and scheming to defraud investors, and by acting illegally as an unregistered broker. Through Baccam's unlawful conduct, investors lost most of their money.

Bill Singer's Comment: Note that the alleged scam went on for nearly three years. This was not a hit-and-run, one-shot fraud. All of which makes you wonder what, if any, due diligence was performed by the 18 pigeons who got ripped off. I mean, geez, they bought unsecured promissory notes, which imposes an even greater duty to inquire as to the who, what, when, and where of the deal. 

5. In pitching the promissory notes to investors, Baccam typically told investors that raised funds would be used to "flip" real estate by buying, renovating, and then reselling the real estate for a profit. Starting in October 2010, he solicited investors to purchase promissory notes issued by a third party called Moret Group LLC ("Moret Group"), which was a small real estate venture run by an acquaintance of Baccam. Moret Group promised Baccam a 10 percent commission on all money he raised by selling Moret Group promissory notes. In selling these securities away from, and without disclosing the sales to, his brokerage firm, Baccam violated the Federal securities laws by acting as an unregistered broker.

Bill Singer's Comment: Head's up to all future investors in these flippin' deals. Baccam first steered his victims to a company that was allegedly paying him an undisclosed 10% commission.  A classic case of conflict. 

6. A few months later, Baccam decided to raise money for his own business, ostensibly to flip real estate, despite lacking any experience in that area. Baccam initially issued promissory notes through a fictitious entity called "PR Group," and later through two then-newly registered companies, Relief Defendants Prim Group and Precision Research Group. All three entities were Baccam's alter egos that he used to facilitate his fraudulent scheme.

Bill Singer's Comment: I am often criticized for complaining that the victims of fraud didn't do enough (or any) due diligence. The criticism that I hear is that a skilled fraudster "works" his targets and gains their confidence. In response, I acknowledge that fact; however, walking into a too-good-to-be-true scam blindfolded isn't all that sympathetic. In Baccam, what due dilly had investors done before they opted to invest with a flipper who lacked any experience? Did any of the victims ask for a history of Baccam's flips? Did any of the victims ask to see projects that he had worked on or to verify his background? What inquiry was made before purchasing promissory notes from a "fictitious entity" known as "PR Group." I mean, c'mon, how the hell do you write out a check to buy a note from a company that doesn't even exist and has not demonstrable bona fides? Yeah, I know, they trusted Baccam. He was so sincere and so convincing.

7. Despite raising hundreds of thousands of dollars for his own venture, Baccam made little effort to conduct a legitimate real estate venture that might produce returns for investors. After purchasing and renovating his first property by 2012, Baccam quickly sold it to his niece at a significant loss, and then continued to live in that property with his family. Thereafter, he used investor funds to pay his niece's mortgage on that property even though it was no longer part of his real estate venture. Baccam acquired his second "investment" property via a short-sale of his sister's friend's house, which Baccam renovated but never sold. It was eventually foreclosed upon. 

8. In addition, Baccam frequently used investor funds for purposes other than as part of his real estate venture. Among other things, bank records reflect that Baccam paid himself more than $200,000 in investor funds, and that he used up to $80,000 for personal expenses such as food and service for his car. 

9. Yet in soliciting investments throughout this period, Baccam fraudulently promised investors that the money would be used for a real estate venture or, at times, that their funds would just sit in an investment account without the risk of loss.

Bill Singer's Comment: If you're going to invest in a deal like Baccam's, maybe, just maybe, it would be a good idea to insist that the books and records are open to all investors? If someone had been monitoring the corporate bank account or the investment account, the transfer out of funds might have been noticed and prompted a few questions. Then again, watching over your investment can be such a bother and such an annoyance.

10. Baccam also misrepresented the nature of the real estate venture to investors. For example, shortly after he began soliciting investments for his own venture through the fictitious PR Group, Baccam directed a friend to sign correspondence to investors that falsely stated that PR Group was "respected, established" and had "earned a reputation for experience, innovation, and customer satisfaction."
11. Baccam further made false statements to investors about the nature of their investment. Among other things, he told certain investors that their investment was virtually risk free, would provide for a death benefit, and that the real estate venture was managed by a third party that was soliciting large investments - none of which were true.

12. Baccam also fraudulently promised investors premium rates of return that ranged from seven to 15.6 percent annually. Baccam knew, or was reckless in not knowing, that investors would never receive these rates of return. Throughout the relevant period, Baccam misappropriated investor funds while conducting only minimal real estate flipping that could never produce the type of returns necessary to repay his investors - and never did.

13. Similarly, in November 2011, Baccam promised one Moret Group investor a 12 percent annual rate of return on a new promissory note, but he knew, or was reckless in not knowing, that Moret Group would never fulfill that promise. From the outset, Moret Group was unable to make its promised interest payments to its initial investors. Baccam had instead been misappropriating funds he raised for his own real estate venture to cover interest payments that Moret Group owed.

Bill Singer's Comment: Investors got a letter informing them that PR Group was a respected and established company with a reputation for experience, innovation, and customer satisfaction. Did any of the recipients of that letter find a shred of proof for those representations? Did anyone demand to see the balance sheet of the so-called "third party" that allegedly managed the venture? Did anyone confirm the methodology by which Baccam would purportedly generate up 15.6% returns? Then again, if you don't look, you can't find. And folks wonder why it's so easy to perpetrate financial fraud.

14. Baccam later continued this misappropriation of investor funds in a scheme to double down on his fraud. On several occasions, Baccam misappropriated other investors' money to make small interest payments owed to an investor for the purpose of deceiving that investor into believing that Baccam's investment was capable of producing the promised returns. Baccam then used that deception to fraudulently raise even more money from investors.

15. By the conduct alleged herein, Defendant Baccam violated Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5], Section 15(a) [15 U.S.C. § 78o(a)] of the Exchange Act, and Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)]. Furthermore, Relief Defendants Prim Group and Precision Research Group were unjustly enriched by receiving the proceeds of Baccam's unlawful activity.

16. The Commission seeks permanent injunctive relief, including a conduct based injunction, disgorgement of ill-gotten gains, plus prejudgment interest, third tier civil penalties, and other appropriate and necessary equitable relief.