Management Solutions

Management Solutions is a Utah company that is currently being liquidated by a court-appointed receiver after its owners, Allen and Wendell Jacobson, settled a securities fraud lawsuit filed by the U.S. Securities and Exchange Commission on December 15, 2011, US Federal Case Number: 2:2011-cv-01165. The case was reported by Federal Agents to be the single largest fraud ever in the state of Utah, against a father and son; Allen R. and Wendell A. Jacobson, of Fountain Green, Utah as well as the company that The Two were said to be running, Management Solutions Inc, claiming that it was a $220 million real estate offering fraud that was targeting the members of the LDS Church. According to the SEC complaint Management Solutions, Wendell A. Jacobson and son Allen R. Jacobson expanded their apartment portfolio with fraud as well as other misdeeds using there memberships in the Church of Jesus Christ of Latter-day Saints to make connections and win over investors. - Affinity fraud. A freeze order was placed upon their assets and those assets are being liquidated by a receiver.

Background

Wendell Jacobson is a former member of The Church of Jesus Christ of Latter-day Saints (LDS Church) and the former chairman of the Sanpete County Republican Party. A statement by the SEC says that Jacobson, with his son Allen, “[offered] investors the opportunity to share ownership of large apartment communities in eight states," but instead "are merely pooling the money raised from investors into large bank accounts from which they are siphoning money to pay family expenses and the operating expenses of their various companies."

The proceedings were made public by the receiver for the SEC who created a website for the victims and updated it as new information became available. The receiver recovered assets all over the United States. In its memos in support of the many motions, the receiver determined that the Jacobsons would often value their projects at up to 500% of the actual price paid for the projects and would resell them to investors using these inflated values.

The SEC alleged that the Jacobsons used their connection as members of the LDS Church to solicit 225 investors through a complicated web of entities all under the umbrella of Management Solutions, Inc.

SEC attorney Daniel Wadley stated, in an interview on KSL-TV, a local Utah TV broadcast, December of 2011 stated that this case was the Bernie Madoff of Utah.

Contempt of Court

A Utah federal judge also ordered Allen Jacobson, already accused of operating a $200 million Ponzi scheme with his father Wendell, to be held in contempt of courtfor his failure to turn over assets to the court-appointed receiver. He is alleged to have withheld over $200,000 in tax refunds that should have been turned over to the receivership estate. United States District Judge Bruce Jenkins agreed, ordering the turnover and forfeit of those assets to the receivership estate and reserving the option to impose further sanctions.

On January 26, 2012, C. Jacobson and A. Jacobson endorsed and deposited into the account two income tax refund checks from the State of Utah. The account records show that on January 27, 2012, C. Jacobson purchased five cashiers checks from Bank of American, using $74,600 of the funds from the income tax refunds deposited the previous day. All were made payable to C. Jacobson.

May 2012, court-appointed receiver, John A. Beckstead, contended that Allen Jacobson had violated the court-imposed asset freeze when they received $208,393.33 in state and federal tax returns that were not disclosed to the receiver.

Jacobson was ordered to turn over the funds as well as pay an additional $50,000.00 fine that was later deemed as non collectable.

Judge Jenkins "Ponzi" ruling

In his 44-page decision, U.S. District Judge Bruce Jenkins ruled that Management Solutions Inc. was on the whole not a Ponzi scheme as the Securities and Exchange Commission first claimed within the lawsuit upon the company and its owners in December 2011, alleging they fraudulently took in more than $200 million from at least 220 investors.

"It seems to me that the ‘Ponzi presumption,’ in equity, as to third parties, should be of limited use — indeed, only in those cases as blatant and as plain as the original Charles Ponzi case and the more recent Madoff case: asset less and fraudulent from day one," Judge Bruce Jenkins wrote in his ruling: "This is not that case." Judge Jenkins has referred to the Decision as an “evidentiary ruling”. The Decision found that funds of the investment companies were generally commingled, that funds in the words of the Decision, “Peter often paid Paul’s obligations”),

Judge Jenkins, in his ruling, traced the legal history of Ponzi schemes from Charles Ponzi in 1919 to Bernie Madoff in 2008 and wrote that there were various financial irregularities as the company was operated by owners Wendell A. and Allen R. Jacobson, including "many Ponzi characteristics." But he wrote that those irregularities needed to be dealt with "transaction by transaction", and not simply as a single, giant fraud.

Jenkins noted the Jacobsons put money from various projections into a single entity then used that as a pool to fund their obligations, including for projects that did not meet promised returns for investors. The ruling additionally represented a victory for some investors who had been opposed the courts designation of the enterprise as a Ponzi scheme that would have allowed a court-appointed receiver to "claw-back" money from some of them who received returns in excess of their capital investments depending on when the payments were made.

Shortly after the court issued its ruling, it also rejected a request by the investor group shooting down their plan to take over ownership of the properties into which they had invested more than $200 million into. US Federal Judge Jenkins said that after some small changes, he would approve a plan set forth by the court-appointed receiver to hire a real estate broker and proceed with the liquidation.

Receivership & Civil Settlement

On January 4, 2013, the SEC announced via a posting on its website that the Jacobson case had been settled. Both defendants release all claims in all assets recovered by the receiver & Wendell A. Jacobson is barred from the financial industry for life. Total amount of fines and disgorgement is $263,885,396.35 The Wall Street Journal reported in February of 2014 that Atlanta-based "Cortland Partners LLC", an apartment developer & owner, has signed a contract to buy the portfolio for $338.5 million (over 98% of the appraised values) from a court-appointed receiver that has managed the buildings since the Securities and Exchange Commission took control from Management Solutions Inc. in late 2011.

March 2014, the costs of the receivership were reviewed in an article in the Salt Lake Tribune, Receiver Beckstead appointed Dec. 15, 2011 total Fees/Expenses as of Dec. 31, 2013 • $1.1 million - Holland & Hart law firm • $4.8 million - Deloitte forensic accountants • $2.5 million - WSRP accountants • $742,808 - Total • $9.3 million.

May 19 2014, it was reported the court had approved the $206.7 million sale of 19 apartment complexes in various states, winding down the liquidation of assets of Management Solutions Inc. An affiliate of Cortland Partners of Atlanta won the right to buy the properties and also hopes to buy an additional 10 complexes for a projected total sales price of $338.5 million for all 29. Investors expected to get back around 50 percent.

External links

• Management Solutions Receivership - site created by SEC receiver