PHOTO/DAVE ROBERT: Tim Walker of Reno holds a photo of his mother, Berniece Walker, 95. Tim Walker had been using dividends from a $670,000 investment in a real estate fund to pay for her long-term care, but his account and hundreds of others managed by Reno-based Hughes Private Capital are frozen after a related investment fund entered bankruptcy proceedings.

The bankruptcy of one of the largest funds at a Reno-based real estate investment firm has left hundreds of local and national clients—some of whom risked millions—worried about their investments, which were touted as delivering “double-digit returns” while being as safe “as a savings account.”

The company, Hughes Private Capital (HPC), advertised heavily on Reno talk radio and in other media for more than a decade and hosted investment seminars at local venues and online. The firm used investors’ money to buy distressed properties, rehabilitate them and then resell or rent them out, generating profits for members of its funds.

One of HPC’s major funds is now in bankruptcy proceedings, and others are underwater, records show. The hundreds of fund investors include a multitude of family trusts in Nevada and other states—including folks who put their nest eggs into the investments, and seniors who used their dividends to pay for living expenses, including long-term residential care.

Some of the firm’s investors have filed complaints with the Nevada Securities Division, which in 2014 levied a $25,000 fine against Hughes Private Capital for not registering its funds with the state. The Securities Division won’t confirm or deny the existence of current investigations, but it is required to investigate all complaints. Several investors interviewed by the RN&R said they recently filed complaints and subsequently were asked to provide documents related to their investments. The Securities Division can pursue both civil and criminal investigations.

In March, three investors in Wyoming filed a lawsuit against HPC. That suit, which alleges financial fraud and other illegalities, is on hold while the Chapter 11 reorganization of one of its funds, called Guardian, proceeds. The bankruptcy petition for that fund lists more than 500 unsecured creditors, including a Sparks church that invested $1.1 million in the fund, and a Washoe County family trust that put $5.2 million into the investment.

Hughes Private Capital advertised its various funds as having projected returns of 7-14% monthly. Dividends were paid regularly, some investors said, until late last year. In December, the firm closed the Guardian Fund to come up with a “stabilization plan.” Another fund, called Vista, also shut down.

Several companies operated under the HPC umbrella. Investors, not HPC, owned the funds, but members had no voting rights; the firm’s management made the financial decisions. Properties were bought and sold; loans were made; and contracts were signed among business entities owned or controlled by HPC. The same entities, bankruptcy managers told investors in April, were “signing both sides of the contract.”

Everything investors thought they knew about the company came from the firm’s marketing materials and the financial statements they received from the company. At the April meeting, bankruptcy managers said HPC’s financial statements were never audited and wildly inaccurate, and that the values of some of the properties it sold to investors were apparently inflated. Some assets on Guardian’s books, they told investors, are worth millions less than their listed values.

A screenshot of Hughes Private Capital’s webpage in 2019, from the Wayback Machine.

In March, three Guardian Fund investors filed suit in Reno against HPC, its owners and related entities. That complaint alleges securities fraud and other improprieties. The allegations are similar to the complaints made in a Texas investor’s lawsuit against the firm in 2020, which was settled out of court the following year.

In a sworn deposition in the Texas case, obtained by the RN&R, one of HPC’s owners admitted the company used new investors’ money to pay dividends to existing investors, because another fund (called Assuravest LLC) failed to generate profits. In a subsequent deposition, a tax accountant described that process of using investors’ money to pay dividends to other investors as “analogous” to a Ponzi scheme.

In communications with clients, the company’s principals described HPC’s problems as the result of Guardian’s bankruptcy, which crippled its plan to purchase and rehabilitate 184 properties and service loans borrowed from its own Guardian and Vista funds.

HPC owners Gregory Hughes and Steve Sixberry, in an email to Guardian clients in December, blamed the firm’s woes on “economic volatility” compounded by the effects of the COVID-19 pandemic on tenants’ ability to pay rents. In an April email to investors of the Vista Fund, Hughes wrote that Vista had $7 million in its capital account, “leaving a $3.79 million impairment,” and that the accounts in that fund would be “adjusted” to 45.8% of their value.

Hughes and Sixberry did not return email and voice mail messages from the RN&R requesting comment.

Guardian and Vista investors interviewed by the RN&R said the funds’ collapse was unexpected and devastating. Some investors said they had their entire retirement accounts or the bulk of their family trusts tied up in investments that they believed were relatively safe.

Hughes, a Reno native, created Hughes Private Capital LLC in 2009, according to the Nevada Secretary of State. Archives available on the Wayback Machine site have images of the firm’s website beginning in 2010. On that page, Gregory Hughes made a pitch for HPC’s investments and cited opportunities created in the wake of the Great Recession, which was triggered by the housing crash in 2007.

“It’s a pretty screwed-up deal. I may have to sell my house to keep a roof over my mom’s head. Her cost of her care has tripled in the last three months to more than $10,000 per month.” Tim Walker, who invested his mother’s retirement nest egg in HPC’s Vista Fund

“Our investors are currently capitalizing on a window of opportunity that was opened by the bubble bursting in the housing market,” Gregory Hughes wrote in December 2010. “They are enjoying a handsome yield as a result of investing with Hughes Private Capital.”

Hughes explained the firm’s Real Estate Investment Fund buys and sells real estate assets for members that are “distressed residential properties,” fixes them up and then resells them “as quickly as possible.” In addition, he wrote, the company locates and purchases real estate for investors and provides property-management services. “It is possible for you to make money and never have to visit your own property,” Hughes wrote.

Since then, the archives show, Hughes Private Capital has offered a variety of funds in which investors owned real estate and shared in the revenue from rents, doled out in monthly dividends. Clients were encouraged to invest money from their retirement accounts. Other investors also bought specific properties from HPC, which managed rentals for them.

On May 23, bankruptcy managers alerted Guardian Fund creditors that about 30% of the properties in the fund’s “secured” portfolio (properties owned by individual investors) are in such bad shape that they are unrentable, and that “due to their physical condition, are not able to generate revenue without significant capital improvements.” Those properties, the letter to investors noted, “are not generating any revenue yet require cash to cover preservation, utilities, property tax and other expenses.”

Although disclaimers on HPC’s website warn that no investment is completely safe, screen grabs of the site from 2014 to 2016 touted “double-digit returns with the safety of a savings account,” funds designed to “protect your investment so you make money in any economy,” and funds that are “a trusted alternative for investors who enjoy high profits and low risk.”

Such private-investment schemes have been popular for decades and often are exempt from the stricter federal regulations covering other types of securities and public companies. After paying the state fine in 2014, HPC applied for and received exemptions for its funds from the Securities and Exchange Commission, records show, and filed the required paperwork with the Nevada Secretary of State.

In April, bankruptcy managers told investors that because HPC’s officers were involved in every aspect of the various funds, management companies and financial transactions, “there were a lot of conflicting interests.”

Investor: fall of a ‘house of cards’

The company’s website documents the company’s exponential growth during the last decade.

In 2014, the website noted the company managed 117 properties and had $10.9 million in assets under management. Two years later, the firm boasted 167 properties and $16.7 million in assets, and in 2018, advertised $270 million in assets and “2,400 doors” in its real estate portfolio.

In 2019, HPC acquired Reno-based Krch Realty; owner Kyle Krch joined Hughes and Sixberry as managers of the firm.

In 2015, an investigation by the Nevada Real Estate Commission concluded Krch violated the law multiple times while engaging in several short-sale transactions. The commission fined Krch $102,000 plus $10,128.67 in commission costs for 39 violations, a ruling that was affirmed by the Nevada Court of Appeals in 2017. Krch could not be reached for comment.

The websites of both HPC and Krch Realty are now inactive.

A screenshot of Hughes Private Capital’s webpage in 2020, from the Wayback Machine.

Tim Walker, who owns a Reno carpet-cleaning firm, started investing his mother’s retirement nest egg in HPC’s Vista Fund five years ago. He made an initial investment of $45,000, which he increased to $617,000 in 2021 after the firm made good on its projected return of 8% per month. By February of this year, when dividends ceased, the account had grown to $671,000, according to HPC’s financial statements. He had used the monthly distributions to help pay for his 95-year-old mother’s stay at an assisted-living facility in Fresno, Calif.

“(Vista Fund) was paying 8 percent, which was cut down to 6% in November, because they said people were not paying rent,” Walker explained. “Then they stopped paying altogether in February.”

On April 7, HPC notified him that dividends were suspended, because the closing of the Guardian Fund also hobbled the Vista Fund, which is still managed by HPC. Although the firm has a plan to restructure its operations, Walker is uncertain how much of the account’s principal, if any, he may be able to recover.

“It’s a pretty screwed-up deal,” Walker said. “I may have to sell my house to keep a roof over my mom’s head. Her cost of her care has tripled in the last three months to more than $10,000 per month.”

Walker said he got interested in HPC after friends had invested in its funds and were getting regular dividends. He heard radio ads for the firm and attended one of the company’s investment meetings at ArrowCreek in Reno. He understood HPC’s process, he said, and knew such funds are a legitimate way to make money by investing in real estate.

“Now the whole house of cards is coming down,” Walker said. “I really don’t think there’s a snowball’s chance in hell that my mom is ever going to get any money back. The Vista Fund now adjusted down to 45% of its current value. They lost 55% of the fund.”

Walker has started a GoFundMe account for his mom, called Help Berniece Walker, hoping to keep her in assisted living for a few months while he figures out how to pay for her care going forward.

‘Never audited, never could be’

After the Guardian Fund was closed in October and put in a “stabilization” period in December that could take up to two years, some Guardian investors in March forced the fund into involuntary Chapter 7 bankruptcy. That process involves liquidation of assets and distribution of the proceeds to creditors. The fund then voluntarily declared Chapter 11 bankruptcy (reorganization) about three weeks later. Bankruptcy managers have said the Chapter 11 process will likely prevail.

During a meeting with investors in April, bankruptcy manager Aaron Noe promised to go after all available assets to recover as much money as possible for Guardian investors.

In the Zoom presentation on April 19, Andrew Palmer, who is working on the fund’s reorganization, explained that the Guardian Fund, “was never audited, and quite frankly, never could have been audited,” because financial records didn’t adhere to generally accepted accounting principles. The fund’s financial statements, he noted, “were disconnected from reality.” HPC’s accounting team, he said, “didn’t have the experience and the training” to produce accurate statements.

A screenshot of Hughes Private Capital’s webpage in 2017, from the Wayback Machine.

Wendell King, a Reno certified public accountant who also is an investor in the fund, is on the new accounting team, which Noe said is busy “cleaning up the books.” King told investors that some of the properties involved in the funds were “recorded in excess of their true values. … This won’t be good news (to investors), but we’re telling you what you need to know.”

King cited the example of four properties that were valued at a total of $24 million, but bankruptcy managers only expect to recover slightly less than $13 million. In that case, he said, “we will be recording a write-off of $11 million, but that doesn’t mean we won’t be pursuing any assets that we can have a claim to.”

The Guardian Fund’s bankruptcy petition lists more than 500 creditors and investors. The top 20 unsecured investors alone had more than $22.5 million in the fund. Of those, 10 are from Northern Nevada, and one is from Las Vegas. The largest creditor, with $5.2 invested in Guardian, is a family trust based in Washoe County. Other Nevada investors among the top 20 creditors had from $640,000 to $1.58 million in their accounts, including a Sparks church, which invested $1.1 million.

The church’s pastor did not return calls from the RN&R requesting comment.

Gregory Hughes told investors in April that HPC’s other investment funds also would no longer be paying dividends and that he plans to file Chapter 11 bankruptcy for the firm itself. As of May 21, no petition had been filed.

In a sworn deposition in the Texas case, one of HPC’s owners admitted the company used new investors’ money to pay dividends to existing investors, because another fund failed to generate profits.

The investors listed in Guardian’s bankruptcy documents hail from across the country, with many from Northern Nevada, Colorado, Texas and the Pacific Coast.

Chuck Earle, of Bellingham, Wash., bought property from Hughes Private Capital in August of last year. Unlike the fund members whose money is pooled to buy real estate, he owns a specific property in Missouri that was managed by HPC, meaning he is among the “secured” HPC investors.

He later found out that the house he bought for $205,000 had been purchased by Hughes for $105,000. “They did a little work on it, but they boosted the value by $100,000 when they sold it to me,” he said. “They were to manage the property and pay 7% to me monthly, $1,046.”

That dividend was paid in September, October and November, he said, “and in December, they quit paying with no warning. I got the letter Dec. 7. … I’d like to know if money was comingled between funds.”

Earle first heard of HPC when it advertised in the Seattle market. He researched the firm online and didn’t come up with any negative information, he said. The high rate of return was a major attraction, he said, as was the firm’s promise of a written 2-year buyback guarantee, signed by Greg Hughes. Earle is now asking the same question as other HPC investors: “There were millions of dollars in these funds. Where did it go?”

The first time Hughes Private Capital shows up in the federal lawsuit data bank is March 2020, when Victoire Van Der Pas, an investor in Austin, Texas, filed suit against HPC, Hughes, Sixberry and a fund called Assuravest. Van Der Pas invested $100,000 in that fund in 2016, she said, and based on the representation by Hughes, she expected that the investment would be profitable with a limited downside. In 2018, her lawsuit alleges, the fund reported “a significant and unexplained loss.” She also alleged that HPC misrepresented other actions involving the fund, and that the profits reported to the investors in a monthly newsletter “could not be located in any of the financial statements” provided to her.

The suit alleged that Assuravest made distributions to investors—despite not having earned any income—by using money from later investors. In a sworn deposition on Jan. 22, 2021, HPC owner Steven Sixberry confirmed that between Feb. 26, 2016, and September 2017, “virtually all of $169,800 in preferred returns” (dividends) were paid out using other investors’ money.

A screenshot of Hughes Private Capital’s webpage in 2017, from the Wayback Machine.

The lawsuit was settled out of court months later. In an interview with the RN&R in May, Van Der Pas said she recouped most of her investment and attorney fees. “(HPC) had made my life miserable,” she said. “I’m still mad as hell.”

Another suit alleges fraud

On March 29, three investors in the Guardian Fund filed suit in federal court in Reno against the fund, HPC, Sixberry, Hughes and others. The complaint alleges securities fraud, misrepresentation, breach of contract and fiduciary duty, unjust enrichment and civil conspiracy. The three plaintiffs were among the Guardian Fund’s “secured” investors. Under that arrangement, the fund would buy residential properties, remodel them and sell the properties to investors. The investors would then lease the properties back to the fund, which would manage them and share profits with investors.

The complaint alleges that the defendants treated the fund as if it were their private assets; that they concealed and diverted fund assets; and that they concealed corporate records from the plaintiffs, among other claims. That suit is now on hold pending the completion of Chapter 11 proceedings.

Bankruptcy managers have outlined a plan restructuring the Guardian Fund. The plan is scheduled to be filed by August, with the deadline for creditor’s claims of Aug. 15.

“My role is to be the Guardian estate watchdog,” said Aaron Noe, bankruptcy manager. “My responsibility is to go after every single possible asset that is Guardian and then to minimize any expenses or claims against that estate.”

Tim Walker, who invested in the Vista Fund—which is frozen but not in bankruptcy like Guardian—is haunted by the collapse of the fund and the potential loss of his mother’s $670,000.

“I based the investments on what HPC said, and I knew real estate trusts have been around for a long time,” he said. “It seemed what they were doing was sound. … A couple years ago, I was discussing the funds with Greg Hughes, and I kind of half-kidding said, ‘It sounds like the only way this could get screwed up is if you screw up.’

“He laughed.”

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1 Comment

  1. An extraordinarily in-depth report, Frank. 👍👍👍
    “…double-digit returns with the safety of a savings account…”
    As the saying goes, if it sounds too good to be true…😟.

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