On August 15, 2018, the Securities and Exchange Commission filed an emergency action against Jerome H. Cohen and Shaun D. Cohen and their companies, Equitybuild, Inc. and Equitybuild Finance, LLC, charging them with operating a $135 million offering fraud involving real estate located primarily on Chicago's South Side.

The SEC's complaint alleges that since 2010, the defendants have sold promissory notes to at least 900 investors throughout the country. The defendants raised these funds by falsely promising safe investments fully secured by income-producing real estate. According to the SEC's complaint, the defendants took 15-30% of investors' funds as undisclosed fees, hiding the fees by reporting inflated acquisition costs. The complaint also alleges that, contrary to defendants' representations, the real estate did not earn enough to pay the double-digit returns promised to investors. As a result, the defendants could only pay earlier investors by raising funds from unwitting new investors.

According to the SEC's complaint, the defendants recently admitted in a video recording to earlier investors that the companies are in financial distress, can no longer afford to make payments to investors, and are cutting staff to a "skeleton crew." Despite these disclosures, the defendants have continued to solicit new investors for various real estate funds, again offering double-digit returns but failing to disclose the companies' dire financial condition.

The SEC's complaint charges Jerome H. Cohen, Shaun D. Cohen, Equitybuild, Inc., and Equitybuild Finance, LLC with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933, and Section 10(b)(5) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and the registration provisions of Sections 5(a) and 5(c) of the Securities Act. The SEC's complaint also seeks injunctions against future securities laws violations, disgorgement of the defendants' ill-gotten gains, and civil penalties.

On August 17, 2018, the SEC obtained a temporary restraining order which, among other things, enjoins the defendants from raising any additional funds from investors. The SEC also obtained an order appointing a receiver to secure the real estate and other assets obtained with investor proceeds for the benefit of the defrauded investors.

The SEC's investigation, which is continuing, was conducted by Timothy Stockwell, Ariella Guardi, and Ann Tushaus and supervised by C.J. Kerstetter. The SEC's litigation will be led by Benjamin Hanauer.