Doesn’t Matter if Real Estate is a Security if You Lie to the Feds

pinocchio lie

I continue to look at the margins where real estate  and securities meet, so any case brought by the SEC against an real estate firm catches my eye. The latest to catch my attention was an investigation into Robert J. Vitale and his investment company, Realty Acquisitions & Trust. While there might be some argument as to whether the SEC had jurisdiction, that didn’t matter once Mr. Vitale lied to the Securities and Exchange Commission examiners.

The SEC was conducting an official investigation into allegations that Vitale engaged in violation of the securities laws. The SEC attempted to identify assets and bank accounts attributable to Vitale and asked for a statement of accounts. Vitale provided a “Background Questionnaire” form to the SEC purporting to list bank accounts and other assets attributable to him. But shortly before completing the questionnaire, Vitale transferred $100,000 from an account that was disclosed on the form, to a separate account that he controlled.

The Department of Justice stepped in and charged Vitale with willfully failing to disclose the existence of those funds and the bank account. To compound the problem, Vitale lied about the accounts and the cash during sworn testimony in an SEC investigation.

Vitale was likely a target because he had previously run into trouble with the SEC and been barred from the brokerage industry as a result.

As the blue fairy said to Pinocchio: “A lie keeps growing and growing until it’s as plain as the nose on your face.” That makes it really easy for the Feds to charge you with obstruction of justice, even if you may not have been guilty of the underlying crime.