Bid to Get Rich On Foreclosures Signals Foreclosure Boom

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BREAKING NEWS
September 21, 2006
Pinnacle Faces Investigation Over Ads
California securities regulators are investigating an Atlanta company that has raised millions of dollars through a national advertising campaign promising fat returns investing in foreclosed properties, according to a person familiar with the matter.

The state is examining Pinnacle Development Partners LLC. Capitalizing on investors' thirst to strike it rich in a waning real-estate market, Pinnacle says it refurbishes foreclosed properties and then sells them at a hefty profit. However, real-estate records show the only buyers of the properties are located at Pinnacle's address.

An advertisement in the Sept. 25 edition of Newsweek magazine, promising 25% returns by investing in Atlanta real estate. California officials are trying to determine whether Pinnacle is generating profits from buying and selling real estate, or whether it is paying returns using other investors' money, which would make it a Ponzi scheme, according to one person familiar with California's investigation. In a Ponzi scheme, earlier investors are paid with money from newer investors, until the supply of new investors runs out.

Robert Hendree, a Pinnacle official, denied impropriety. "We're doing perfectly fine, legitimate business here," he said.

In interviews, customers said they consistently received promised payments from Pinnacle and, when they asked, were also able to withdraw their initial investments. Still, some investors say they don't understand how Pinnacle is able to pay such high returns. "We don't see the back end. Is he selling the properties?" asked Gerry Reif, an investor in Denver. Mr. Reif says he participated because the offer was too good to pass up.

The Federal Bureau of Investigation is looking into the matter. The FBI declined comment.
A Pinnacle newsletter distributed to current and potential investors says the company is "anticipating the addition of many new investors" as a result of the Newsweek ad. A spokeswoman for Washington Post Co.'s Newsweek said the magazine had received an official inquiry about Pinnacle earlier this week, "and made the decision not to run any more of the ads until the investigation is complete."

In documents sent to earlier investors, Pinnacle promised payment in 30 days. That "closing period" has grown to 45 days and then 60. Keith Ellis, a postal worker in Washington who invested $5,000, and other investors said the company told them that future closing periods will be as long as six months.
The Wall Street Journal

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Bid to Get Rich On Foreclosures Signals Foreclosure Boom

Category: REAL ESTATE

By: Pete Kendall, September 21, 2006

The next wave of scandals is probably still growing, because in-too-deep participants generally do whatever it takes to stay solvent as the reversal takes place.
The Elliott Wave Financial Forecast, May 2006

Real Estate Ad
The Greatest Pinnacle on Earth
As we also noted in May, “There are some benefits to the ripple effect that keeps the churn of the Great Asset Mania pushing through one asset class after another, from Beanie Babies to tech stocks and most recently through real estate. One big benefit is that, at this point, it’s not hard to clearly envision where the post-peak stress fractures are going to show up.” Or that they are actually still spreading right under everyone’s nose. This full page ad is the one that's been running in recent issues of Newsweek magazine. The come on, “Stocks Still Low?,” shows just how aggressively operators have been exploiting investors’ desperate bid to get on board the last great gusher of the Great Asset Mania. The ad boosts of a “25% return within 60 days with a minimum $5 K investment.” Notice how the pay back periods are getting longer and longer, a classic sign that the well of untapped "investors" is drying up. We’ll be shocked if the FBI doesn’t discover something other than a “perfectly fine, legitimate business.” In May we showed an article about costly mortgage scams (see Additional References below), and said they were just warm up acts. This is still just another warm-up, but the audacity displayed by promoters and the credulity of investors announces that that the main event is going to be one wild show.

Additional References

May 2006, EWFF
Real Trouble In Real Estate
Another aspect of the reversal that no one ever counts on in the midst of a mania is the high level of fraud that invariably attaches itself to the hottest sectors. This was the basis for the following statement in the July issue: “This time there is no mistaking who the Enrons of the bust phase will be. They will be the firms now pedaling adjustable-rate, no-interest/nothing-down and assorted other types of ‘sub-prime’ mortgages.” The next wave of scandals is probably still growing, because in-too-deep participants generally do whatever it takes to stay solvent as the reversal takes place, but its outline is clearly visible in articles like this one from MarketWatch on April 9:
Home Is Where the Fraud Is
Mortgage scams cost billions
Once a nuisance to a handful of lenders, mortgage fraud has blossomed into one of the fastest-growing white collar crimes in the country.

The fulfillment of these 2005 forecasts about the housing market confirms that a Grand Supercycle version of the Supercycle real estate busts of the 1830s and 1930s is underway. These are just the warm-up acts. If there is a banker out there who took this advice from Conquer the Crash, “Sell off your largest-percentage mortgages and get into safer investments,” it’s time to sit back and enjoy the show.

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