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Sunwest’s Ponzi Scheme

Published on March 25th, 2009

Seattle Post-Intelligencer had an article about the recent SEC complaint filed against Sunwest for fraud.  Sunwest Management Inc. runs one of the largest chains of nursing homes in the country.

The SEC asserts that Sunwest lied to investors about its operations, concealed risks from them and exposed them to massive losses before Sunwest’s collapse.  The SEC also asked for an emergency court order freezing the assets of Sunwest.  Sunwest, which manages 250 senior housing projects in 37 states, had defaulted on a number of loans last year after it began to run out of cash and couldn’t tap into any more credit.

The government alleges that Sunwest misled investors by telling them the company had never missed a payment and would generate 10 percent returns. "In reality, at least half of the homes managed by Sunwest had been losing money, and investors were taking on huge risk for illusory profits."

McKnight’s followed up with an article describing the fraud as a Ponzi scheme.  Sunwest defrauded investors out of roughly $300 million in a Ponzi scheme.  According to the SEC, Sunwest raised $300 million from 1,300 investors between 2006 and 2008. Investors thought they were purchasing partial ownership of one of Sunwest’s facilities, and had been guaranteed an annual return of 10%.   Instead, Sunwest placed the money in one fund that it used to pay operating expenses, investor returns and other costs. Investors were never informed that many of the facilities they thought they had invested in were actually losing money.

I wonder how much money the officers and directors stole from the company before the collapse.  These people should share a jail cell with Bernie Madoff.

Joe Pioletti
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