An Atlanta real estate firm that offered a guaranteed 25% return on investments in 60 days used ads in national media to boost its credibility and attract millions from investors, but federal prosecutors say Pinnacle Development Partners LLC was little more than a Ponzi scheme.
A federal judge in Atlanta ordered the firm closed after the Securities and Exchange Commission (SEC) accused Pinnacle of raising at least $30 million from more than 2,000 individuals in 33 states. The court named a receiver and froze the assets of Pinnacle and its owner, Gene A. O'Neal.
The Wall Street Journal reported that the figure could be as high as $60, according to persons familiar with the investigation.
Respected publications who carried Pinnacle's ads include Newsweek, USA Today, the Wall Street Journal, the Los Angeles Times and the Washington Post.
The SEC said the advertising was illegal because Pinnacle hadn't registered to sell securities. Whether the ads were fraudulent is a question that's likely to be litigated as part of the SEC's prosecution.
Some investors are asking why the publications didn't catch the ads. But while publications generally review ads for suitability, they're not able to vouch for the reputability of every advertiser and most publish disclaimers say they do not endorse the products advertised, publishing industry experts noted.
Legally, it is the advertiser who is responsible for ensuring that ads are not fraudulent, according to the Federal Trade Commission.
Consumers must exercise caution when reading ads, the FTC advises.
"Any representation of high earnings with little or no risk, skills, or training is likely to be false and misleading," the FTC notes in a brochure.
Pinnacle used the ads not only to generate revenue but to build its credibility, observers said. Some investors said they were told by the firm's salesmen that Newsweek had run background checks before agreeing to run the ads.
The ads "Quick Profit" in "the Booming Atlanta Market." The Newsweek ad explained some of the business, saying Pinnacle bought and sold "distressed properties" in Atlanta.
The SEC charged that, in reality, Pinnacle merely passed the real estate from one group of investors to another.
O'Neal's attorney, Michael J. O'Leary, said his client was iinnocent.
