EcoVest declined to comment for this story. But in a Dec. 21 court filing, the company said it “has helped to preserve in perpetuity nearly 20,000 acres of undeveloped property, including forests, meadows, wetlands, streams, and coastal plains.” EcoVest said it complies with all of its legal obligations and “undertakes rigorous processes to ensure its projects, and the independent qualified appraisals of the value of conservation easements, are valid and lawful.”
In 2015, EcoVest turned to a newly established Triloma Securities to act as the managing broker-dealer. Triloma recruited 37 other broker-dealers to create a national network that included more than 200 “front-line sellers” of EcoVest conservation easement syndicates, according to the Justice Department. In three years through 2017, the Triloma-authorized sellers raised $413.7 million for EcoVest conservation easement syndicates, the government said.
Marketing Investments
EcoVest created private placement memos outlining its deals, and its employees worked closely with sellers, attended meetings to discuss syndicates, trained them on how to market deals, and joined them on customer calls, the government said.
In its filing, EcoVest said: “Finra rules and regulations require broker-dealers to perform substantial due diligence before offering investments for sale, and EcoVest provides broker-dealers with required due diligence materials and a limited set of training materials.”
According to the U.S. complaint, sellers for one Colorado firm told investors: “When done correctly, it won’t be denied by the IRS. Typical worst case is that the valuation gets lowered and you would see less in tax savings.” The Justice Department has subpoenaed documents from Triloma, Kalos and several other firms involved in the sale of easements.
Triloma, which hasn’t been accused of wrongdoing, didn’t respond to requests for comment. The firm is no longer registered with Finra, though records don’t indicate why.
In another case involving a $9.7 million offering, an investor accused a broker-dealer of pushing a “high-risk, high-commission and unsuitable investment” in a syndicated conservation easement while withholding key facts and failing to conduct proper due diligence, according to a confidential arbitration complaint reviewed by Bloomberg.
Criminal Cases
Grand juries in Atlanta, St. Louis and Charlotte, North Carolina, are investigating promoters. Two accountants who pleaded guilty to fraud charges are helping prosecutors investigate a promoter who structured syndicates that generated $1.2 billion in tax deductions, people familiar with the matter told Bloomberg in March.
There’s also risk for investors, some of whom have sued promoters and others involved in structuring the deals.
According to an investor lawsuit filed March 30 in Atlanta, the IRS disallowed 100% of the deductions a partnership had claimed for a syndicated deal tied to 147 acres in Shelby County, Alabama, in 2016. In that case, the property was acquired for $709,000 and appraised a few days later at $25 million if fully developed. Investors paid $5 million to join the partnership and were promised five times as much in tax deductions, according to the lawsuit, which seeks class-action status. The partnership is fighting the IRS ruling in Tax Court.
The Mississippi deal documents sent to Beer indicated that by preserving the plot, investors who collectively put up $4.3 million stand to save almost twice as much in taxes within 15 to 18 months. A securities filing for another deal by the same promoter, Otemanu Village Sand Investors LLC, shows that of the $8 million the venture raised, $2.3 million went to Village Sand Investors and Hudson, its executive officer.
“This is designed to be sold to people who don’t ask questions,” Beer said. “These businesses revolve around people hearing what they want to hear.”
This article was provided by Bloomberg News.