Sanjeev Acharya and his company, Silicon Sage Builders LLC, face Ponzi scheme allegations from Securities Exchange Commission. The SEC published a complaint in December 2020 that alleged Acharya had built a $119 million fraud. In addition to equity offered by Silicon Sage Builders (SSB), investors may also have invested in building projects via the SSB “Bridge Fund.”
How Did the Fund Work?
In addition to bank and construction loans, Sanjeev Acharya raised money via promissory notes and equity investments. Acharya promised investors incredibly high returns of 18% to 23% for their investments in various building projects in the Bay area, including multi-unit, multi-use properties. Investors in the Bridge Fund were promised 15% returns, according to the SEC. All told, the SEC estimates that Acharya raised over $119 million from approximately 250 investors. The complaint alleges that from 2016 to 2019 the project had significant costs but not nearly enough profits to pay the promised returns to investors.
Additionally, although Acharya represented to potential investors that they could withdraw their money at any point, he allegedly failed on multiple occasions to reply to investor requests for the return of their principal.
Sanjeev Acharya Struggled to Turn a Profit
The SEC complaint alleges that due to unexpected construction costs, the fund struggled to make money. Instead of telling his investors about his miscalculations, the SEC alleges that Sanjeev Acharya used deceptive practices to hide his projects’ failures.
When forced to confront his properties’ lack of commercial success, the SEC alleges that Acharya used the Covid-19 pandemic as an excuse as to why his buildings were not living up to financial expectations. The SEC alleges that only one of the Silicon Sage construction projects ever generated a profit, but that profit wasn’t enough to keep the scheme afloat. By October 2020, the Bridge Fund had just $19.58 in its bank account while it owed investors approximately $40 million.
What Made the Fund a Ponzi Scheme?
Acharya allegedly represented that the payments he made to investors were from the fund’s profits when they actually came from new investments. In fact, one investor told India West that when he asked to withdraw his investment, Acharya told him to wait until he had money from new investors. When the investor pointed out to Acharya that that would constitute a Ponzi scheme, Acharya allegedly told him that as the LLC’s manager, he could manage the fund however he wanted.
SEC Alleges Sanjeev Acharya Ran a Ponzi Scheme and an Affinity Scheme
Acharya raised money from his own South Asian community in northern California. According to the SEC complaint, many of the original investors were Acharya’s family members and friends. The SEC alleges that SSB functioned not only as a Ponzi scheme but also as an affinity scheme – a scheme in which the fraudster exploits their ties to a community.
Alka Patel, the Associate Regional Director of the SEC’s Los Angeles Office, said in a statement: “…Wrongdoers sometimes prey on the trust of members of their communities to raise funds for their fraudulent schemes.” You can read more about signs of an affinity scheme in the SEC’s investor alert “Have Something in Common with Someone Selling an Investment? It May Make You a Target of Fraud.”
How Can Investors Avoid Ponzi Schemes?
Before investing, make sure you do your research and check out the fund manager’s credentials. If you believe you may have been the victim of a Ponzi scheme or an affinity scheme, you should reach out to a securities attorney to determine if you can recover your principal. The securities attorneys at Fitapelli Kurta offer free case evaluations – just call (877) 238-4175 or email email@example.com to speak with a lawyer.