SEC files fraud charges against Wise
By Linda Bentley | April 8, 2009
‘Commission brings this action in order to protect investors from ongoing fraudulent conduct’
PHOENIX – On April 2, the Securities and Exchange Commission (SEC) filed fraud charges and obtained a temporary restraining order (TRO) against Dan Wise aka Danny Wise and his various entities, including Whispering Winds Properties, LLC, LM Beagle Properties, LLC, Karlena, Inc., Axis International, Inc., “in order to protect investors from ongoing fraudulent conduct …”
The SEC states Wise, who was a certified public accountant, had two employees who worked at his direction. Wise convinced many of his clients, along with their friends and family, to invest money with him in order to profit on real estate investments.
According to the complaint, approximately 125 people invested somewhere around $67 million with Wise and his companies between 2001 and 2009. It said, “Defendants misrepresented that investors’ funds would be invested in loans secured by real estate, they would earn high returns and that they could obtain the repayment of their investment on short notice. Defendants did not loan funds as represented, did not pay investors the promised returns and have not repaid the loans to investors despite the investors’ repeated requests.”
Unless enjoined, the SEC was convinced Wise would continue to violate the antifraud provisions of the federal securities laws.
In November 2008, investors filed a Chapter 7 involuntary bankruptcy proceeding in U.S. District Court for the District of Arizona after Wise failed to make required payments on promissory notes.
On Feb. 23, 2009, the bankruptcy court entered an order for relief and appointed a trustee to administer the bankruptcy estate.
The SEC outlined Wise’s “fraudulent scheme.” It started in July 2001, when Wise, who started his accounting and tax practice sometime around 1983, began soliciting his clients to invest money with him, touting his 10-15 years experience in investing in real estate loans.
Wise represented to investors that their funds would be used to invest in short-term, high-interest loans that would be fully collateralized by second trust deeds or other collateral. He promised returns ranging from 12 to 22 percent and assured them they could obtain the repayment of their principal on 24 to 48 hours notice.
To entice his clients to invest, Wise made it appear as though his investors were part of a small group of family and friends, as he encouraged clients to borrow, obtain home equity loans, refinance the mortgages on their homes or use retirement funds as sources of money to invest with him.
Investors were provided unsecured demand promissory notes stating returns ranging from 3 to 20 percent per year in exchange for their funds.
Wise would periodically renew investors’ notes by rolling over their principal and interest into new investments, occasionally documenting the roll-over by issuing new notes.
From 2001 through 2007, Wise’s promissory notes were the only written documents.
However, in 2008, when Wise sought to raise substantially more money, he began producing PowerPoint presentations to support his efforts, which repeated what he had previously told investors.
Wise claimed Whispering Winds had been doing private lending for over 20 years working with a select group of real estate investors and stated he personally invested funds in each real estate loan.
The PowerPoint presentation also specifically listed commercial buildings, residential homes and land as acceptable collateral for investments, guaranteed a minimum annual return of 15 percent and stated investors could obtain repayment upon 30 days’ notice.
The SEC said Wise comingled investors’ funds in at least 30 bank accounts held in his name and the companies he controlled.
Toward the end of 2008, Wise began closing those bank accounts.
According to the SEC, Wise told some investors he would repay their investments only if they helped him raise funds from other investors and continued to make similar statements even after the bankruptcy proceedings were filed in November.
In support of the requested TRO, the SEC stated it was seeking relief to stop a fraudulent Ponzi-like scheme perpetrated by Wise.
The SEC states Wise, 52, was a CPA until December 2008 when the Arizona Board of Accountancy revoked the Scottsdale accountant’s license for ethical violations and for allegedly misappropriating $2.7 million in clients funds intended for payment to the IRS.
Pointing out that Wise is also the subject of a Chapter 7 bankruptcy proceeding, the SEC stated, “Wise refused to testify as to any substantive questions relating to matters alleged in this action, asserting his Fifth Amendment right against self-incrimination.”
Several investors attended that bankruptcy proceeding where Wise, who was accompanied by a criminal lawyer, refused to answer any questions.
According to those in attendance, when one of the investors asked Wise if he would ever see his $400,000 again, Wise laughed.
Apparently Maureen Gaughan, the court-appointed trustee, didn’t share Wise’s humor and confiscated his iPhone.
On Monday, U.S. Bankruptcy Judge Randolph Haines granted Gaughan’s motion authorizing employment of an appraiser and auctioneer to sell the property of the estate as well as her application to employ a computer forensics expert.
Last Thursday, in a 13-page order, U.S. District Court Judge Mary Murguia, in granting the SEC’s application for a TRO, further ordered Wise and anyone associated with him in any way restrained and enjoined from employing any device, scheme or artifice to defraud; obtaining money or property by means of any untrue statement of material fact or any omission to state a material fact; or engaging in any transaction, practice or course of business which operates as a fraud or deceit upon any person.
Except for an amount not to exceed $500 for reasonable and necessary living expenses for the duration of her order, Murguia ordered frozen more than 30 bank accounts belonging to Wise, Wise and his wife Cynthia, and in the names of his various LLCs, stating the freeze also applies to accounts not listed.
Murguia further ordered Wise to prepare and deliver to the SEC, within five days, a detailed and complete schedule of all assets, including all real and personal property exceeding $5,000 in value, all bank, securities, futures and other accounts identified by institution, branch address and account number, adding, “The accounting shall include a description of the source(s) of all such assets.”
Wise is scheduled to appear before U.S. District Judge Roslyn O. Silver at 3 p.m. on April 9 “to show cause, if there be any, why a preliminary injunction should not be granted and a permanent receiver appointed.”