SEC Matter Resolution Statement | Tom
Braegelmann

In October 2023, the U.S. Securities and Exchange Commission filed a civil complaint concerning the offering structure and disclosures of two real estate investment funds that Chuck Tralka and I established to invest in residential real estate properties. The complaint also named Matthew Sullivan, a co-manager responsible for investor relations and communications, financial commentator Jordan Goodman, investment adviser Good Steward Capital Management, and its principal Robert Barr.

At the time the complaint was filed, the SEC issued a public litigation release summarizing the allegations, which resulted in articles and online references to the matter.

Key Outcome Summary

• Fraud-based claims were dismissed with prejudice and cannot be refiled
• One of the two real estate funds involved in the case was dismissed entirely from the litigation
• The case concluded without findings that any investors had been defrauded, misled, or harmed
• The case did not involve allegations that investor funds were misused, diverted, or misappropriated
• The only remaining issue involved a technical procedural matter under Section 5 of the Securities Act
• The matter has now been fully resolved

In many regulatory matters, the initial allegations receive broader public attention than the later developments and ultimate outcome as the case progresses through the legal process.

After conducting an extensive regulatory review that included a detailed examination of offering documents, financial records, investor communications, and operational practices spanning multiple years, the SEC dismissed all alleged fraud-based and scienter-based claims referenced in those articles. Those claims were dismissed with prejudice, meaning they were permanently closed and cannot be refiled.

Notably, one of the two funds involved in the case was dismissed entirely from the litigation.

With the alleged fraud claims and all other substantive allegations dropped, the case ultimately concluded without findings that any investors had been defrauded, misled, or harmed. Importantly, the case did not involve allegations that investor funds were stolen, misappropriated, or diverted for personal use.

The only remaining issue in the case related to a technical procedural matter under Section 5 of the Securities Act, which governs how investment opportunities may be marketed or offered to investors unless they are formally registered with the SEC.

Because securities rules can be complex, the real estate fund offering documents, subscription materials, and fund structures were developed with the guidance of specialized securities attorneys experienced in structuring private real estate investment funds. My team and I worked closely with those attorneys throughout the process and followed their guidance regarding how the offerings were structured and communicated. Those same documents and communications were among the materials reviewed by the SEC during its multi-year examination.

Once the case had narrowed to the remaining procedural issue, continuing litigation would have required a full federal trial and substantial additional legal expense. After several years of litigation and review, the remaining issue related to a technical procedural matter under Section 5 of the Securities Act governing how certain investment opportunities may be marketed. Rather than incur significant additional legal costs that would not have been recoverable even if successful, the parties agreed to resolve the remaining matter through a standard no-admit, no deny settlement.

Resolving the matter allowed all parties to bring the process to a close after several years of review and litigation. The case therefore concluded without findings of fraud and without findings that any investors had been harmed. The matter is now fully resolved.

Background and Context

The funds were operated by a team with defined roles. Chuck Tralka and I evaluated real estate opportunities and managed the overall direction of the projects. Matthew Sullivan served as a co manager and handled investor relations and communications. Good Steward Capital Management served as the investment adviser and administrative manager for the funds.

During the period when the funds were being marketed, financial commentator Jordan Goodman discussed the investment opportunity on his syndicated financial radio program and introduced potential investors to the funds. Because the opportunity was discussed publicly through national financial media, the offering received broader visibility than many private real estate investments.

Around that same time, Mr. Goodman also became involved in a separate SEC enforcement case involving another organization with which he had been working. That organization was later found to have engaged in fraud. Mr. Goodman ultimately resolved his own matter with the SEC without admitting or denying the allegations.

As soon as we became aware that Mr. Goodman had become involved in that separate SEC matter, we immediately ended all involvement with him and consulted legal counsel. There was no further association thereafter.

The timing of those events occurred during the same period the SEC began reviewing the funds and their offering structure.

The SEC complaint included allegations relating primarily to disclosures in the offering materials, operational practices of the funds, representations regarding experience, projected returns, and the technical structure of the offerings.

One area examined during the regulatory review involved how the offering materials described the managers’ years of real estate experience.

My real estate career began in the early 1980s and includes more than four decades of work in real estate ownership, development, lending, and management across more than 200 properties involving single-family homes, multifamily housing, development projects, and commercial real estate.

Chuck Tralka had experience participating in real estate investment projects involving property acquisitions, development partnerships, and real estate lending activities. Combined, we had more than fifty years of real estate experience at the time the funds were formed.

During the regulatory review the SEC examined thousands of pages of documents,
communications, and financial records related to the funds. Throughout the process our team worked closely with legal counsel and provided extensive documentation requested during the review.

Securities regulators play an important role in protecting investors and maintaining confidence in financial markets, and the review process was treated with the seriousness it deserves.