5 Star Commercial, 5 Star Capital, and Operator Earl Miller Charged with Fraud
The Securities and Exchange Commission (SEC) announced that on November 5, 2015 an emergency enforcement action was filed in federal district court against Earl Miller (Miller) and two private investment vehicles that he controlled, 5 Star Commercial, LLC (5 Star Commercial) and 5 Star Capital Fund, LLC (5 Star Capital), alleging that he made material misrepresentations to investors and perpetrated a fraudulent scheme in raising investor funds for the 5 Star entities.
On November 6, 2015 the court issued a temporary restraining order (TRO) freezing the assets of Miller and the 5 Star entities, and prohibiting each of the defendants from soliciting, accepting or depositing any monies from actual or prospective investors while the TRO is in effect. The SEC’s complaint alleges that starting in 2008, Miller recruited investors for a number of private investment entities that he created. Miller recruited investors for 5 Star Commercial, 5 Star Capital and his other real estate entities from a network of predominantly novice investors, including members of the local Amish community. From July 29, 2014 to the present, he raised at least $3.9 million from more than 70 investors for his 5 Star Commercial and 5 Star Capital entities.
The Complaint further alleges that in raising those funds, Miller repeatedly lied to prospective investors. He told investors that he would receive no compensation for managing the fund when, in reality, he paid himself at least $365,435 out of 5 Star Commercial’s accounts and also took more than $645,000 from 5 Star Commercial’s bank account to pay a personal debt he owed to a former business partner. Second, Miller and 5 Star Commercial informed investors that their money would be invested exclusively in real estate when, in reality, he invested and/or transferred over $391,000 of 5 Star Commercial’s funds into highly speculative, fledgling companies that purportedly made and marketed “green products.” In addition, he told defrauded prospective investors in 5 Star Capital that 5 Star Capital owned patents on many of the “green” products in which he would invest their funds; assured investors that he would “manage risks” on behalf of 5 Star Capital; and orally represented to at least one 5 Star Capital investor that his money would be invested in real estate. None of these representations were true. In reality, 5 Star Capital owned no “green product” patents, Miller performed virtually no due diligence into the purported “green” companies before handing them the lion’s share of 5 Star Capital’s assets, and the overwhelming majority of 5 Star Capital’s assets were not invested in real estate.
The SEC brought this enforcement action against Miller and 5 Star entities to ensure that no further securities law violations are committed, to secure assets from potential dissipation and to safeguard investors from further harm. The SEC is seeking disgorgement of funds in the possession of Miller or the 5 Star entities as a result of the securities fraud so if possible any remaining funds can be returned to victims of the scheme.
The SEC’s complaint charges that Miller and the 5 Star entities violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks final relief in the form of a permanent injunction against Miller and the 5 Star entities, disgorgement, prejudgment interest, and a civil penalty against each defendant.
For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit www.securitieslawyer101.com. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.