Opportunity Zone Investment Fraud – Sometimes It’s Better To Just Pay The Taxes

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The announcement of the indictment of Joshua Burrell on charges of securities fraud, wire fraud and aggravated identity theft by the United States Attorney’s Office for the Southern District of New York is very sad. Joshua Burrell was an advocate of making opportunity sector investments serve social objectives while providing better returns to investors. There was a certain level of admiration in his concept. It is not clear how things went wrong. Burrell’s attorney, Todd A. Spodek, declined to comment at this time.

Publicity

Recently Rob Rowan of CFA Society of New York interviewed Josh Burrell – Josh Burrell, Real Estate for Charities and Investment Returns with Active Capital,

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Burrell was interviewed by Eddie Cullen who identifies Burrell as one of the leading investment professionals in New York City. I reached out to Cullen for comment. The video was removed before this story ended.

Here’s Burrell With Armstrong Williams

In the interview we learn about the “double bottom line”. The idea is that enterprises need to be evaluated for the positive social impact that they produce. The kind of win, win, win that Burrell was talking about was rehabilitating dwellings in depressed markets and then leasing them out for some kind of rent-to-own deal. The advantage of the rehab model was that it would be able to distribute the 8% cash flow distribution more quickly, while toward doubling the bottom line, tenants would be getting equity somehow.

coatsville

In his interviews, Burrell talks about deals across the country, basically everywhere other than California, New York, and Massachusetts. The only solid place visible at active personl Website is Coatesville PA. there is Coverage from inception in 2020 of the Coatesville Impact Fund. Burrell is quoted

We expect to deploy $25 million through the fund focused on single-family and multi-family residential and small commercial properties in Coatesville and its surrounding areas. Activated also seeks to invest in local businesses that align with the values ​​inherent in Impact Fund. We look forward to working closely with the hard-working entrepreneurs who are currently developing businesses in Coatesville, as well as with people and companies who are interested in relocating to Coatesville. Huh.

I’ve had no luck finding more information on what really happened in Coatesville. I spoke to someone who had explored a partnership with Burrell in Active Capital, but was discussing signing contracts in what they perceived to be a “bait and switch” strategy.

My source claimed that he had put Burrell on the notion of rehab, where an 8% return was quite possible. As far as he could tell, however, what was currently going on in Coatesville was the development of a velodrome. Now you and I both know that the velodrome is an indoor cycle track, but you have to consider other readers.

The land around that project appears to have been approved by the city council for sale. It will be interesting to see how dependent the project was on Burrell’s active capital.

SEC complaint

On November 15, the Securities and Exchange Commission filed a complaint against Burrell and Active Capital LLC. The complaint states that Burrell defrauded fourteen investors through Activate who put $6.3 million into Active’s funds. Almost all of this went into the Activated Capital Opportunity Zone II, LLC (Fund II). My source told me that Burrell thought of calling it “Fund II” to hide the fact that there was no Fund I.

The fund’s documents indicated that distributions would be made from operating income. Instead the distribution was partly funded by investor contributions and borrowings against acquired assets. Thirteen properties were acquired in Chester County (the county that includes Coatesville) for $1.7 million.

The complaint also alleges that Burrell diverted $100,000 himself, marking the disbursements as property improvements.

indictment

The indictment lays out the fund structure a bit more thoroughly. This indicates that the wealth of money was mixed. The indictment reiterates the Ponzi type activity that the SEC complaint alleges was going on. The fund is also more about increasing the assets. According to the indictment, Burrell told an investor who was putting in $3 million that $7 million had already been raised, when in reality there were only $1020,000. Another investor reported $250,000 that “just under” $20 million had been raised.

The indictment also alleges that Burrell fabricated bank statements and property acquisition statements in an attempt to persuade a boutique investment firm to sell Active Money. It also mentions diversion of funds for their personal use.

Lesson

The government definitely has to prove its case and we haven’t heard from Burrell’s lawyers. Nonetheless, for the purposes of analysis and text drawing, let’s take his version of events at face value. On the bright side we can take some reassurance in the overall financial system, given that Burrell wasn’t too far off from his plans. He only managed to raise $6 million, some of which was actually used to buy assets and some of which went back to investors. The venture was nipped in the bud very quickly.

For the victims, however, the lesson is embodied in Reilly’s second law of tax planning , Sometimes it’s better to just pay taxes,

there one The Investments tab on the Active Capital website, That tab devotes itself to the tax savings from investing in the opportunity sector.

If you have a capital gain of $1M through the sale of a stock, bond, business or asset. Instead of paying $238,000 in taxes, you invest $1M in the Active Capital Opportunity Sector Fund that focuses on double bottom line returns. Let’s say in 2028, the fund returns approximately $2M including the original investment with an 8% ROI. No tax is payable on $1M profit. You will pay only $202,300 in deferred capital gains on the first initial sale. Below is the comparison calculation which shows this scenario

Included in the tab “Unrealized Capital” is a step-by-step process of investing which ends with

The fund will deploy capital in our shovel-ready fully tested projects and projects that deliver cash flow through preferred returns within 180 days.

In terms of your decision-making process, he is backward. The OZ position of the investment makes it somewhat less expensive. Imagine you were sitting with after-tax income of your capital gains. Would you invest them in that velodrome in Coatesville PA or whatever Activated had ready to shovel for you? If not, you’re better off paying taxes.

Other coverage

is on TheRealDeal Manhattan investor charged in opportunity sector fraud,

NS of wire Is Opportunity Zone Fund Manager accused of securities fraud,

Melanie Waddell think advisor IsEC Charge Firm, Founder In Opportunity Zone Fund Scam,

thomas o gorman SEC files action against gatekeeper, He notes:

Market professionals are a current focus of commission enforcement actions. While this includes the “gatekeeper focus” recently mentioned by Chair Gensler, it is hardly new. The focus on gatekeepers as a way of taking advantage of scarce resources dates back to the early days of the Department of Enforcement. The principle is straight forward: if the people with access to clients – lawyers, accountants and market professionals – comply with their professional obligations it helps prevent many instances in which unsuspecting members of the public rely on professionals. so that they can run

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