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Investment adviser Brenda A. Eschbach has consented to an entry of judgment against her for misappropriating over $3 million in client funds, the Securities and Exchange Commission (SEC) announced on Feb. 15.

The SEC Complaint Against Brenda A. Eschbach

According to the complaint filed by the SEC in U.S. District Court for the Central District of California on Feb. 14, Eschbach stole funds clients had given her to make investments. Her fraudulent scheme ran from 2003 to 2009.

Over that time she solicited money that was supposed to be invested in non-publicly traded Real Estate Investment Trusts (REITs). Eschbach, a 55-year-old resident of Tustin, Calif., instead placed the money in accounts she controlled to pay for her own living expenses, business expenses, credit card payments, mortgage and tax payments, Mercedes lease payments, private school tuition for her daughter, and trips to Las Vegas and Atlanta, the complaint said.

Proposed Final Judgment

The proposed final judgment orders disgorgement of about $2.5 million. The payment can be satisfied by the restitution ordered in the criminal proceeding against Eschbach, also in the Central District of California, the SEC release said.

In September 2011, Eschbach pleaded guilty in the criminal action to one count of mail fraud and one count of money laundering. She was sentenced in mid-February to 41 months in prison, according to a report in the Orange County Register.

Entry of the final judgment in the SEC case is subject to the approval of the court. In addition to disgorgement, the judgment would permanently enjoin Eschbach from violating federal securities laws and permanently bar Eschbach from the financial services industry.

Eschbach’s Fraudulent REIT Scheme

The fraudulent REIT scheme began when Eschbach worked for a nationally-recognized financial planning and brokerage services company identified in the complaint only as “Advisor.” Beginning in March 2003, she operated a franchise of Advisor in Irvine, Calif., that provides brokerage, insurance, and financial planning services.

In August 2007, Eschbach and a partner founded Aventine Investment Services Inc., an investment adviser registered with the SEC that Eschbach used to continue her fraudulent scheme until 2009 She also associated with a broker-dealer for compliance and supervision purposes during this time.

During her association with Adviser and Aventine, Eschbach misappropriated over $3 million from three individuals identified in the SEC complaint as NL, JS and HK. Eschbach also defrauded Client P, an entity related to NL and JS.

The clients NL, JS and P first began working with Eschbach’s when she was with Advisor, and then moved with her to Aventine as she recommended.

While NL had been investing in REITs for a few years through Eschbach with good results, in March 2003 she recommended REIT investments that turned out to be fraudulent. When NL agreed to invest another $125,000, Eschbach told him to make the check payable to her so she could facilitate the transaction, but she misappropriated the funds and converted them to her own use, the complaint said.

Until August 2008, Eschbach continued to solicit funds from NL, purportedly to invest in REITs. Instead, she misappropriated all of it, the complaint said. In total, NL thought he had invested more than $1.5 million in non-publicly traded REITs, when in reality, Eschbach had stolen all of these funds.

In June 2005, Eschbach convinced NL and JS that their company, Client P, should also invest in REITs. Client P agreed to invest $200,000, which was promptly misappropriated.

Eschbach then turned to JS as an individual investor. He had previously invested in a REIT when Eschbach still worked for Advisor that had performed well, so in two transactions he handed over another $290,000 that Eschbach took for herself, the complaint said.

While she was still associated with Adviser, Eschbach disguised her misappropriations by preparing and mailing fake account statements, ostensibly from EMA Investment Properties Inc., a fake entity Eschbach used to perpetrate her fraud, the complaint said. In fact, EMA was never incorporated.

The fake statements identified the accounts, units owned, quarterly or monthly distributions, and the investments’ supposed total value at the time of the statement. From these fake EMA statements, the REIT investments appeared to have increased in value over time. Eschbach continue to pump out these fake statements after she started Aventine.

The Scheme Unravels

Thanks to JS, the scheme blew up in mid-2009. That April, JS requested redemption of his REIT investment for money to buy a house. He completed the paperwork and Eschbach told him that he would receive his distribution by June 30, the complaint said. When he did not receive his money, JS asked for an explanation and was not satisfied with what he heard.

JS then hired an attorney who was told by Eschbach that check was on its way, but no check was ever sent, the complaint said. Shortly thereafter, Client P asked for a redemption, and NL requested that his monthly distributions go directly into his bank account rather than being reinvested.

By this time an increasingly desperate Eschbach need to get her hands on some money to satisfy these demands, the complaint said. In August 2009 she convinced a new client, HK, to invest $500,000 in a non-publicly traded REIT. Eschbach lied about her qualifications to impress HK, claiming that she had both an MBA and a Ph.D., and that she had over a billion dollars under management.

After HK wired the funds, Eschbach transferred the money JS. She claimed it represented the redemption of his REIT investment, the complaint said. By this time JS and NL and were demanding the redemption of Client P’s non-existent REIT investments.

Eschbach went back to HK claiming she had REIT investment opportunity, that it time sensitive, and that she would waive her fee if HK came up with the money a few days. So in October 2009, HK wired another $500,000 to Eschbach, the complaint said.

Later on the same day, Eschbach transferred money to NL’s bank account and to Client P’s bank account, saying the funds were from the redemption of Client P’s REIT investment, the complaint said. Over the next few days, what money remained from HK’s wire transfer went into Eschbach’s various personal accounts.

In total, from March 2003 through October 2009, Eschbach misappropriated over $3 million from Clients NL, JS, P and HK.

Guiliano Law Group

If you have been the victim of securities fraud you should consult with a litigation attorney. The practice of Nicholas J. Guiliano, Esq., and The Guiliano Law Group, P.C., is limited to the representation of investors in claims for fraud in connection with the sale of securities, the sale or recommendation of excessively risky or unsuitable securities, breach of fiduciary duty, and the failure to supervise. We accept representation on a contingent fee basis, meaning there is no cost unless we make a recovery for you, and there is never any charge for a consultation or an evaluation of your claim. For more information contact us at (877) SEC-ATTY.