Tampa investment firm accused of $170 million Ponzi scheme

TAMPA — The U.S. Securities and Exchange Commission is accusing a Tampa real estate investment firm and its founder of running a Ponzi scheme that raised $170 million from about 1,140 investors and misappropriated millions of dollars to pay for sports cars, collector wristwatches and chartered jets.

Federal regulators sued EquiAlt, its owner and chief executive officer, Brian Davison of Tampa, and its managing director, Barry Rybicki, of Phoenix, Ariz., in federal court in Tampa last week. U.S. District Judge Mary Scriven has since frozen EquiAlt’s assets, ordered the company not to destroy documents and appointed a receiver to manage its affairs while the case is pending.

“Davison and Rybicki made ‘too good to be true’ promises about nearly every material aspect of EquiAlt’s business to induce retail investors, including elderly individuals, to invest with them,” Securities and Exchange Commission Miami regional director Eric I. Bustillo said in an announcement of the lawsuit. “The SEC’s emergency action seeks to prevent further harm to these retail investors and locate and preserve as many assets as possible.”

In a text message to the Tampa Bay Times, Davison said, “we deny the allegations and look forward to our day in court.”

“The SEC’s filings present an inaccurate picture of Mr. Rybicki’s business dealings," Washington D.C. attorney Stephen L. Cohen said in an email to the Times. “We look forward to addressing these matters with the court.”

In 2015, the Times profiled EquiAlt’s business of snapping up distressed properties. Davison said then he launched EquiAlt as part of an effort to reinvent himself after a previous lending company went bust and he had to file for bankruptcy during the Great Recession.

At the time, Davison described finding bargains at tax-deed sales, which take place when county officials auction off properties with owners who are at least two years behind paying their property taxes. The goal, he said, was almost always to buy and hold. In 2017, EquiAlt announced plans to build a 78-unit condo project near downtown St. Petersburg. In 2018, it moved the oldest house in Hillsborough, Pinellas or Pasco counties, a 176-year-old four-bedroom bungalow that it had purchased, from near Ybor City to a new location in Tampa.

"We are long-term players in the market,'' Davison told the Times in 2015. "We wish to be part of the community.''

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Federal regulators say EquiAlt and its leaders promised investors that 90 percent of their money would be used to buy real estate in distressed markets, and that they would earn 8 to 10 percent annually as the properties were rented or flipped to new owners. EquiAlt described the opportunities as “secure,” “safe,” “low risk” or “conservative.”

Instead, the Securities and Exchange Commission’s attorneys said, less than half the money went into real estate, resulting in the purchase of an estimated 260 properties, and Davison and Rybicki used investor funds to pay themselves millions in undisclosed distributions, commissions and fees. As a result, the company’s assets and projected earnings couldn’t cover the principal and interest owed to investors.

Many of the investors are retirees who dipped into their pensions or individual retirement accounts to invest with EquiAlt, according to the suit. Many were not accredited investors, who are required to have substantial assets or incomes, even though the suit said the EquiAlt investment funds were purported to be limited to accredited investors.

“I didn’t understand the documentation much," a retired social worker from Alameda, Calif., said in a questionnaire for the Securities and Exchange Commission about his decision to invest $25,000 with EquiAlt.

“The business is almost solely reliant on new investor money to fund its operations,” Securities and Exchange Commission attorneys said in their motion for a temporary restraining order. “Indeed, as the funds have lost money every year since inception, EquiAlt and the funds have used new investor funds to pay interest and principal to existing investors.”

Last November, EquiAlt had just $6.8 million in the bank and owned properties that it valued at $145 million. Regulators said the company earned just $4.4 million last year in rent and from sales of properties it owned.

By comparison, according to court pleadings, this coming December EquiAlt will owe investors $167.3 million in principal and interest.

Meanwhile, the commission said, EquiAlt has paid Davison $33 million in cash and assets and Rybicki $27.3 million. Moreover, officials said both men have “freely drawn from the funds at whim,” using the money for:

• $1.8 million that Davison paid to the Internal Revenue Service for back taxes from 2014 to 2016.

• $2.7 million that Davison spent on luxury cars, watches and chartered private jets.

• Ferraris and Porsches for Rybicki.

The Securities and Exchange Commission is asking the court to order an accounting of EquiAlt’s assets. liabilities and uses of investor funds, to require the defendants to pay back any ill-gotten gains received from investors and to impose a civil penalty on them.

At the moment, Davison and Rybicki are saying federal regulators are presenting a distorted picture of their business.

Five years ago, though, Davison acknowledged that his approach was not without its pitfalls. At tax-deed sales, properties were sold “as is,” and sometimes came with outstanding judgments or other liens that had to be paid off. And sometimes the buyer still had to take further legal action to gain an uncontested title to the property.

“It’s a risky enough” business, he said, "if you don’t know what you’re doing.''