SEC goes after three suburban developers

Investigators from the Securities and Exchange Commission say three individuals involved in suburban real estate developments defrauded investors of their money by using the funds for personal purposes, according to a complaint filed in federal court this week.

The suit filed in Chicago charges developer Marcin Malarz and business partners Jacek Sienkiewicz and Arthur Lin with raising $14.38 million from 43 investors between September 2006 and January 2009, through the sale of fraudulent promissory notes.

According to the SEC complaint, investors were told their funds would be used to purchase and convert apartment complexes and sell them as condominiums at a profit, including the Burton Grove Condominiums in Elk Grove Village, Buffalo Creek Condominiums in Buffalo Grove and Willow Lake Condominiums in Lombard.

However, Malarz used about $3.4 million of investors’ funds to finance his other businesses, repay outstanding personal debts, and support “an extravagant lifestyle,” according to the complaint.

Authorities say Malarz used the money to maintain his multimillion-dollar home in Lake Forest, make payments on a BMW lease, send his children to a prestigious school, and take trips to Poland, Cancun and Las Vegas.

The SEC complaint also says Malarz used $1.96 million to make “ponzi-type interest” and principal payments to previous investors.

The complaint says that Malarz and Sienkiewicz promised investors annual returns from 12 percent to 50 percent, and that they would be paid from the proceeds of sales of the converted condominium units. Malarz, and in some cases Sienkiewicz, personally guaranteed the investments in writing, though they “materially overstated their respective net worths,” according to the SEC.

Authorities also say Malarz and Sienkiewicz gave some investors mortgages on properties that they either owned or were about to acquire, in order to secure the investments. They told at least two investors that their funds would be used as part of a down payment on the Lombard apartment complex, even though that property was never purchased. Instead, the money was either transferred to personal bank accounts or used to renovate the other two apartment complexes, the complaint says.

Authorities say Lin received $436,000 in undisclosed commission payments and transmitted them to his wife, Gloria, who is listed as a relief defendant in the complaint.

By 2009, the business partners’ “scheme was no longer sustainable,” the complaint said, as they had almost no cash on hand and were behind on mortgage payments and interest payments to investors. Foreclosure proceedings began on the three condo developments.

The SEC is seeking repayment of $6.71 million from Malarz, $7.67 million from Malarz and Sienkiewicz, and $436,000 from the Lins.

Malarz, 36, of Lake Forest and Sienkiewicz, 44, of Highland Park, are both believed to be living in Eastern Europe. Arthur Lin, 47, and Gloria Lin, 41, live in Barrington.