A former police officer and his cohort used about $7 million in real estate fund investor money to pay for luxury homes, exotic vacations, gambling debts and a Ferrari, according to the SEC.

The SEC announced today it has obtained a court order to halt the alleged fraud and Ponzi scheme. Named in the complaint as the masterminds of the scheme are John J. Bravata, a former police officer from Brighton, Mich., and Richard J. Trabulsy of Northville, Mich.

The SEC alleges the two men raised more than $50 million since 2006 from at least 440 investors by offering memberships in what they described as a real estate investment fund with expected returns of 8% to 12%.

In actuality, the SEC alleges, no more than $20.7 million was used to buy real estate. Bravata and Trabulsy instead used money from new investors to make Ponzi-like payments to earlier investors. They also spent at least $7 million of investor money on themselves and Bravata's family, for gambling debts and extravagant items including jewelry, vacations, boats and cars.

Bravata, according to the SEC, used about $90,000 from the fund's first two investors to buy himself a Ferrari sports car.

The two men allegedly carried out the scheme through two companies they control: BBC Equities LLC and Bravata Financial Group Inc. Bravata came up with the name of BBC, which stands for "Billionaire Boys Club," according to the SEC complaint.

This real estate portfolio used for the scheme is highly leveraged with mortgages and other liabilities exceeding $128 million, and BBC Equities has never been profitable, according to the SEC.

In order to keep their scheme afloat, they paid out $11.3 million in Ponzi-like payments by using new investment proceeds to pay distributions to earlier investors. They also spent $14 million soliciting and marketing the offering, according to the SEC.

"Investors thought they were investing in a safe and profitable real estate investment fund, but instead their money was being used to pay for luxury homes, exotic vacations, and gambling debts of the defendants," said Merri Jo Gillette, director of the SEC's Chicago Regional Office.