By Charles Sells
Last month, a 56-year-old investment advisor located in the Inland Empire in California was arrested by the FBI for allegedly taking hundreds of thousands of dollars in client capital for his own personal use. Even worse, he used one of the soundest but least-understood real estate investing strategies available as a front for his activities.
Paul Mata was indicted on multiple counts of mail fraud, wire fraud, and making false statements after allegedly serving more than 100 clients in California between 2008 and 2015. He has already been a defendant in a civil action initiated by the SEC that resulted in an $11.74 million judgment against him.
The investment advisor, Mata, now stands accused of operating multiple ventures designed to elicit investors’ trust and investment capital. He promised 5-10 percent returns on money thanks to “government-backed tax liens” and “asset-backed real estate certificates,” terminology just close enough to the language actually used in tax lien and tax deed investing that investors felt comfortable investing their capital with him. Unfortunately, those investors did not realize that actually, the returns on real tax lien and tax deed investments are conventionally much higher when working with a legitimate investment company with a long and verifiable history. In some ways, Mata’s returns projections themselves could have served as a red flag for investors had they better understood the vehicles he implied he used to generate his returns.
Investment advisor failed to disclose he had been terminated
According to the U.S. Attorney’s Office, Mata failed to disclose he had been terminated by a financial services company in 2009 and had been named in disciplinary actions filed by financial regulators in California and Nevada. He also lost his financial advisor license as a result of one of those filings. Interestingly, this July, Mata’s original financial firm made headlines because clients he obtained through work at the firm are still seeking restitution from that $11.74-million judgment. About 12 percent has been paid out in the last 10 years.
Ultimately, investments under Mata’s management have been reported by prosecutors to have returned nothing to investors. Instead, they allege, Mata used them to put a down payment on his home and “replenish private bank accounts.” If Mata is convicted, he could face nearly 300 years in federal prison.
The real tragedy here is not the investment advisor Paul Mata, but the roughly 100 investors who lost their retirement savings, in large part, because they did not fully understand how tax deeds and tax liens work. It is certainly the case that tax liens could be argued to be “government-backed” or that tax deeds are “asset-backed,” but any time you invest capital with a fund or individual, be certain to understand the details of those terms before investing. Mata’s investors likely assumed that what they believed true about tax lien and tax deed investing was, in fact, how he was operating his investment strategies. In reality, there is no certainty to be had about what he was doing, if anything, with the money, and it is important to note he has not been convicted yet, either.
However, there are a few things your tax lien or tax deed investment manager should be easily able to answer:
- What type of returns are typical for this investment in the market in which we are investing?
- Why is the market where we are investing advantageous for this strategy?
- Is our goal to acquire property or receive payment for the liens in question?
- What are your preferred states for investing in tax liens or tax deeds? Why?
Most real estate investors, even the experienced ones, are not particularly familiar with tax lien and tax deed investing strategies. Furthermore, most do not have access to the auctions and the historical presence there to effectively leverage investor capital when it comes to purchasing these assets with investors’ goals and priorities in mind. Working with a long-lived investment services provider like PIP Group is the best way to establish a clear strategy for your investment capital along with a defined way to measure activity and returns. You can learn more about our process and our dedication to transparency at PIPGroup.com.
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