A few weeks ago the U.S. Securities and Exchange Commission (SEC) charged developer Sanjeev Acharya, founder and CEO of Sunnyvale-based SiliconSage Builders (SSB) with a “Ponzi-like” fraud involving more than $100 million in investments from about 250 private, mostly South Asian, investors.
SiliconSage has built several infill developments in Santa Clara and Sunnyvale.
The builder’s most notable Santa Clara project is the mixed use 1313 Franklin (Downtown Gateway) across from the Franklin Mall that was touted when it was proposed in 2015 as the catalyst for a new Santa Clara downtown. SiliconSage has proposed an expansion to its Sunnyvale Mathilda mixed-use development and has an approved 795-apartment development in Alum Rock.
SiliconSage raised money for nine projects since 2016. All but one was unprofitable, five were abandoned and Acharya was making interest payments to investors by raising new money, according to the SEC’s complaint.
As he brought on new investors from his own South Asian connections, Acharya pressed them to introduce him to other potential investors, according to the complaint. These investors weren’t unsophisticated or inexperienced investors. They included finance professionals and investment advisors.
Yet, Acharya persuaded them the company’s outside-the-box approach — directly managing developments through design, constructions and final sale — yielded better profits than conventional methods.
When the company’s dire financial condition became overwhelming, Acharya blamed COVID-19 for causing investment to dry up, “execution delay mistakes,” “lack of controls,” and “over optimism,” according to the complaint.
Signs of Trouble Back in 2018
Based on Acharya’s sunny presentation of the business and promised annual returns of 18 percent, finance executive Udal Bellary invested $1 million in SiliconSage entities.
Acharya didn’t disclose project overruns, liabilities for abandoned and unprofitable projects topping $6 million and that one fund was responsible for interest payments to previous investors, Bellary said in his statement to the SEC.
In 2018 Acharya asked Bellary to step in as acting CFO. The finance manager didn’t like what he saw.
“Mr. Acharya exercised a lot of control over the finances and generally did not share responsibilities or information with others at SiliconSage,” stated Bellary. “I observed …financial records…were not accounted for properly… expenses were frequently misclassified… a lot of commingling of funds.”
Meanwhile, Acharya was preoccupied with fund-raising.
“[He] was constantly raising money. He would constantly ask me to refer him to other investors,” Bellary stated. “[It] raised a question in my mind…whether SiliconSage was perpetrating a Ponzi scheme.”
Around May 2018, Bellary told Acharya “I was worried that SiliconSage could be running a Ponzi scheme. Mr. Acharya got very angry and told me …he wasn’t running a Ponzi scheme.”
Bellary tried to redeem his investment, but got no response from Acharya.
Returns Prove Scarce
Investor Balakrishna Joshi was promised 23 to 25 percent annual returns on his 2012 investment. In 2018 Joshi made a short-term investment in the Santa Clara 1313 Franklin project. When the debt came due, Joshi didn’t receive principal or interest.
“He [Acharya] kept telling me that he would pay me the next month, and then the next month,” Joshi said in his statement.
Acharya eventually paid the interest, but told Joshi, “he could only provide me with my principal when the commercial space was leased…. he had not disclosed this to me prior to my investment.”
In Spring 2020, Acharya told investors he had a pandemic-related liquidity problem, asking them to defer interest payments for six months, according to investor Jino Joseph’s statement. “He requested referrals to new investors for … alleviating what he described as a short-term problem.”
In the summer, Acharya started coming clean about the company’s condition, admitting that projects from 2016 onward, with one exception, were unprofitable, according to Joshi’s statement. Acharya raised $150 million from investors that had all been spent.
The developer then disclosed to Joseph that “due to an accounting error,” interest payments were being paid with other investors’ money.
Acharya, Joseph stated, “reiterated his need for additional cash to complete the projects… offered …investment options, including investments in future projects, and conversions of existing interests in projects to … future projects.”
When Joseph told other investors what he learned, Acharya told him, “I had done a lot of ‘damage'” and “offered me cash for my Bridge Fund note if I would leave ‘quietly.'”
Joseph asked where the money would come from. Acharya answered he “had many investors who trusted him and that he could get the money. I then told him that I did not want a deal …and he offered me a condo… I told him that I did not want to take part in any side deal.”
In his reply to the SEC’s complaint, SiliconSage’s attorney Michael Piazza called the SEC’s action a “rush into the courthouse… without any direct allegation of misappropriation.”
Investors’ interests “would be severely compromised by any fire sale triggered by the SEC,” Piazza wrote. Acharya has suspended fundraising and rolling over investments.
A hearing is scheduled — case # 20-CV-09247-SI — on Feb. 25, 2021 at 10 a.m. Federal cases can be found at pacer.gov.
Don’t Be a Victim of Affinity Fraud
Do you belong to a religious organization? Are you an immigrant? Maybe you belong to a professional organization, sing in a choir or are over 65. Regardless of the specifics, you have something specific in common with a group of other people — an affinity.
And chances are there’s someone out there is looking to defraud you based on that affinity.
Affinity scams often involve Ponzi schemes — where new investor money is used to pay off a previous investor — according to the SEC, creating the illusion of a secure, profitable investment. When the new investor supply chain stops, investors find their money gone.
The SEC offers guidance on how investors can protect themselves from affinity fraud.
The SEC advises:
- Promises of consistent double-digit investment returns are consistently frauds
- Never invest solely on recommendations by members of an organization or ethnic group you belong to
- Investigate investments thoroughly, independently check the truth of what you’re told about investments
- Be aware that people recommending investments may have been fooled themselves
- Be suspicious of investments described as risk-free
- If an investment sounds too good to be true, it probably is
- Don’t be pressured or rushed into buying an investment before you have a chance to think about – or investigate – the “opportunity.”
- Be skeptical of an offer that’s not in writing
You can file a fraud complaint or tip at www.sec.gov/tcr.
