Second US Capital partner barred from securities industry, ordered to pay a more-than $10 million judgment
DENVER (Oct. 7, 2015) – An order of permanent injunction barring John Koral of Boulder, a former partner of US Capital, Inc., from the Colorado securities industry was approved by a District Court Judge, which included a judgment in the amount of $10,281,820.41.
The order, initiated by Division of Securities, part of the Department of Regulatory Agencies (DORA), comes just months after Boulder attorney Lee Weinstein, Koral’s business partner, stipulated to entry of a $1.75 million judgment against him, a liability which he shares with Defendant Koral. Koral and Weinstein operated US Capital, Inc. from 2006 to 2011.
“I applaud Securities Commissioner Gerald Rome and the Division of Securities staff’s investigative work and their commitment to protecting Colorado investors,” said Joe Neguse, Executive Director of DORA.
US Capital operated as a so-called “hard-money lender” that specialized in making real estate loans to commercial borrowers who were not eligible for traditional loans for real estate purchases. In order to fund these loans, the company would obtain money from individuals and in return issued promissory notes entitling investors to interest. Investors were made to understand that funds obtained would be secured by the properties, and would have priority over any other loans on the properties.
The investigation conducted by the Division of Securities discovered that a substantial portion of investor funds were used as loans to other companies owned by Koral and Weinstein. Also unbeknownst to investors, the US Capital officers reassigned real estate meant to secure investor monies to instead secure bank loans, giving the banks priority over the investors. In one instance, Koral used the real estate securing the investors’ monies for personal use.
When the debts became unmanageable, investors were notified that interest payments would be placed on hold for a time. They received no further information and were never notified that funds from the company had been redirected to the partners’ other business enterprises.
US Capital went bankrupt in late 2010, and in the process approximately 30 individuals holding promissory notes lost more than $10 million.
“We hope investors who read this will be motivated to do the homework necessary to make sure they have all the information before investing” stated Securities Commissioner Gerald Rome. “This is especially true when you are investing in private transactions like this, where you are not dealing with licensed individuals or registered securities. Contact our office and we can help to identify potential red flags.”
Koral did not answer the complaint filed by the Commissioner, nor did he participate in any phase of the litigation. The injunction followed the entry of a default judgment against him.
Division of Securities