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Yet Another Unregistered Broker Charged in EquiAlt Scam

SEC says California-based Robert Joseph Armijo personally made over $1 million in commissions by selling unregistered 'distressed market' real estate funds in what regulators say was a Ponzi-like scam.

A California-based individual was charged by the Securities and Exchange Commission for his part in selling unregistered securities in an alleged scheme that raised in total more than $170 million from approximately 1,100 investors throughout the country.

According to the complaint filed in California federal court, Robert Joseph Armijo acted as an unregistered sales agent when promoting the unlawful sales of securities from EquiAlt, a Florida-based company charged by the SEC in February of last year with defrauding investors by selling unregistered securities. In addition to Armijo, the SEC named Joseph Financial, the company he controlled, as a defendant in the complaint.

The SEC complaint against Armijo argued that from 2016 until the commission filed its emergency order last year, EquiAlt, under the direction of President Brian Davison and Vice President Barry Rybicki, solicited investors for funds meant to purchase real estate in “distressed markets” throughout the country to boost revenues to a point where they could pay clients interest rates of 8-10% for each year. But there was a problem; the funds were “unprofitable almost from inception,” according to the commission.

“Without sufficient revenues to pay the money owed to investors, EquiAlt soon resorted to fraud, using new investor money to pay the interest promised to existing investors in a Ponzi like scheme,” the complaint against Armijo read. 

To do so, EquiAlt hired a network of unregistered sales agents (among them Armijo), who enticed investors with three-  to four-year debentures promising that 8-10% fixed return, according to the SEC. The complaint stated that many of these clients were elderly or retired, and some used their IRAs to invest in the funds. Many of these investors had been attracted to the funds by promises that their investments were “secure, low risk and conservative,” according to the commission.

“Moreover, many of the investors were unaccredited or unsophisticated in that they lacked knowledge or expertise in financial matters, were not capable of evaluating the merits or risks of the investments, and were not otherwise capable of bearing the economic risks of the investment,” the complaint read.

Armijo first became involved with the company in 2013 when he, along with an unnamed California-based unregistered broker, agreed to share commissions being paid by EquiAlt for selling its securities. The two agents ended their arrangement in 2016, and Armijo subsequently contacted Rybicki about selling EquiAlt securities on his own. They struck an agreement, and Armijo was soon selling securities while earning 10% commissions, as well as bonuses if sales exceeded a certain monthly amount, according to the commission.

Armijo would solicit investors and tout the supposed merits of EquiAlt securities while reassuring them about risks, according to the complaint. Additionally, he would often recommend the funds to clients by claiming that the investment would offer “liquidity in three years,” and would offer a monthly income for investing in what he argued amounted to a “debt-free real estate fund.” (Armijo could not be reached for comment as of press time).

Armijo would also provide offering documents and marketing materials for potential investors while processing paperwork to complete investments, and would also join in calls between prospective investors and EquiAlt representatives, according to the complaint. In total, Armijo (through Joseph Financial) raised about $4.85 million from investors by selling securities to more than 50 retail investors, and made about $1.1 million in sales commissions.

The SEC’s seeking an order that would permanently enjoin Armijo from violating the provisions in the complaint, and also want him to pay disgorgement with prejudgment interest and civil penalties.

In addition to the Feb. 2020 emergency order against EquiAlt, the commission has also charged other unregistered sales agents with conduct that is similar to the accusations against Armijo. Some investors have filed a class action suit against EquiAlt, with an attorney and several law firms ensnared in the legal response to the alleged scheme.

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