Suneet Singal

The SEC recently filed a Complaint against Suneet Singal, a 41-year old resident of El Dorado Hills, California, and CEO and chairman of First Capital Real Estate Trust Inc.’s (FC REIT) board of directors, as well as the beneficial owner and CEO of First Capital Real Estate Advisors, LP (FC REIT Advisor).

The SEC alleges in the Complaint that Singal perpetrated two separate frauds with FC REIT and a BDC, a business development company in which he owned a 24.9% beneficial ownership interest in the company’s investment adviser from October 2016 to April 2017 and sole beneficial ownership from April 2017 to March 2018. FC REIT owns income-producing real estate assets such as a hotel, apartment, or commercial buildings with its principal office located in New York City. In general, FC REIT does not directly own real estate but rather owns interests in its operating partnership. REIT’s operating partnership acquires property by issuing operating partnership units (OP Units) to the seller. FC REIT Advisor serves as the external adviser to FC REIT, managing daily operations of FC REIT and its operating partnership, including filing all required documents with the SEC.

Singal founded First Capital Real Estate Investments, LLC (FC Private) in 2008 to operate as a commercial and residential real estate investment firm. The company acts as a private holding company for several of Singal’s businesses, including businesses named in the SEC Complaint.

The SEC asserts that between September 2015 and March 2018, Singal falsely claimed that he beneficially owned 12 hotels and purported to contribute them to FC REIT in order to acquire a $15.2 million interest in REIT’s operating partnership. Singal, through FC Private, purported to contribute to certain real estate assets in FC REIT with an overall net asset value of $41,777,402. In exchange, FC REIT issued over 3.3 million OP Units for $12.49 each. Because Singal did not have enough money to purchase FC REIT Advisor, the seller agreed to have Singal contribute additional property to enable him to buy REIT Advisor without requiring him to pay substantial cash at closing.

However, Singal did not own nor was he successful at acquiring all of the properties he purported to contribute to FC REIT, including 12 limited service hotels with an assigned net equity value of approximately $15.2 million. Then, Singal and FC REIT allegedly made material misrepresentations and omissions concerning the hotels in several SEC filings, including: 1) Singal and his related entities had contributed assets with an overall net equity of $41,777,402 in exchange for the issuance of 3,344,868 units of FC REIT’s operating partnership at $12.49 per OP Unit; and 2) Singal and his related entities had contributed “18 hotels” representing “424,095,024 in net equity.” Singal made several other misrepresentations in the Forms 8-K to the SEC during this time period. The SEC asserts that Singal’s misconduct caused FC REIT’s net asset value to decline by $15.2 million and caused the net asset value per share to decline, thus causing FC REIT to issue common shares to investors at inflated prices.

In fall 2016, Singal, in an effort to relieve FC Private’s and its subsidiaries’ cash flow problems, acquired an ownership interest in a BDC’s external investment adviser. Just after acquiring the BDC, Singal made BDC’s first investment to Company A, a limited liability company headquartered in California that owned and operated franchised fast food locations that sold baked goods, and in which Singal owned 100% of the membership interests in the company until the day before the loan. In February 2017, Singal sold all membership interests to the operations manager in exchange for an $11.5 million promissory note. Company A subsequently filed for bankruptcy in September 2017.

Before selling Company A, Singal arranged for Company B, a Nevada limited liability company that provided human resources and operations services, to be the employer entity for the employees of several businesses he owned, including Company A. Through FC Private, Singal owned 50% interest in and controlled Company B and continued to exercise control over the management and policies of Company A even after he sold it.

Singal then directed the BDC to make two $1.5 million loans to these companies but then allegedly used nearly half of the loan proceeds for his own purposes. Specifically, according to the Complaint, Singal directed $800,000 of the $1.5 million loans to be transferred from Company A to FC Private, despite him selling Company A and despite affirmative covenants prohibiting Singal from using the loan proceeds to support his private businesses. The BDC lost its full $3 million investment.

The SEC’s Complaint charges Singal with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Exchange Act of 1934, Section 206 of the Advisers Act of 1940, Sections 36(a) and 57(a) of the Investment Company Act of 1940, and for aiding and abetting First Capital REIT’s violations. The other entities listed as respondents that Singal controlled are also charged with breaking securities laws.

The Complaint also seeks injunctive relief from all respondents, disgorgement of ill-gotten gains with prejudgment interest from Singal and First Capital Real Estate Investments, LLC, and civil penalties against Singal and First Capital Real Estate Advisors, LP and First Capital Real Estate Investments, LLC. Singal also faces an officer-and-director bar.