A case study in 'too good to be true'

Agencies allege clients lost $1.6m

State and federal complaints paint a dark picture of a Sudbury man who they say swindled more than $1.6 million from investors in a range of scams, with his alleged victims including parents who signed over their children's college funds and a widowed nursing-home resident who entrusted the proceeds from the sale of her condo.

Federal prosecutors on May 21 charged Stephen Lewis Hochberg, 60, with wire and securities fraud. The same day, Secretary of State William F. Galvin and the federal Securities and Exchange Commission filed civil complaints alleging Hochberg, a former accountant, used the contacts he developed working for a Needham consulting firm to lure people to clean out their bank accounts and retirement funds to invest in a fake real estate firm called Realty Funding LLC.

"This case highlights the need for investors to assure themselves that the persons soliciting them for investment are registered to do so in Massachusetts, as this individual was not," said Galvin in a statement.

The SEC charged Hochberg with six securities violations. The state added three more criminal charges. If he loses the civil cases, Hochberg would have to pay back the money. The SEC put in an additional provision that would bar him from holding any officer or director role in a publicly traded company for the rest of his life.

The criminal charges against Hochberg carry penalties of up to 20 years in combined prison terms and $5 million in fines. He has not been arrested, but was summonsed to appear in US District Court in Boston this week.

"At this stage, there are just various complaints and charges out there, and so my only comment is that my client is very much looking forward to his day in court," said Hochberg's lawyer, Brad Bailey, with the Boston firm Denner Pellegrino. "At the appropriate time we'll address all of the allegations against him."

Since 2002, authorities charge, Hochberg solicited investors to contribute to his fictional real estate fund, promising returns of 8 percent to 10 percent and falsely claiming the company had many investors and more than $8 million in assets.

His investors included a South Carolina couple who wired $250,000 to Hochberg in June 2005. Following the death of the husband in 2006, the widow tried to withdraw the money, but could not, authorities say.

In 2004, Hochberg allegedly persuaded a Massachusetts family to sign over $150,000 from their children's savings funds to Realty Funding, money that was also never returned.

Between November 2004 and August 2007, the SEC filing says, two brothers from North Carolina and California, whose family members had also invested with Hochberg, put more than $1 million into what they were assured was a "stable investment." After the family became suspicious of Hochberg's actions, they asked for their money back and received about $100,000.

After an investigation found that Hochberg was not licensed to give investment advice, the agencies took action.

"People usually complain when they feel something is wrong with the arrangement they have with an investment broker. He's not a broker," said Brian McNiff, a spokesman for the secretary of state's office. McNiff and the SEC declined to identify any of the investors.

The scheme was a textbook example of "too good to be true," as laid out in an e-mail from Hochberg to the South Carolina couple:

"Pretty simple, we hold 8 first mortgages - soon to be 9 - your money goes into the pool - none of the loans are greater than 65 percent loan to value - all owner-occupied commercial real estate - paying quarterly at 8.25 percent," Hochberg wrote. "I run this myself . . . mostly longtime clients of mine who have put in money. Been doing it for 9 years - we pay out interest quarterly - a lot of people use it to plan their cash flow."

In another alleged scheme, the SEC says, between 2003 and 2004 Hochberg promised an elderly widow - a close friend of his parents - a 4.5 percent return on an investment in Massachusetts municipal bonds. The widow, who now lives in a nursing home, gave Hochberg $150,000 in proceeds from the sale of her home. The SEC says Hochberg used that money to pay off his own debts.

The SEC complaint describes a pattern by Hochberg of using client funds to underwrite personal expenses and indulgences over the years, including hotel rooms, zoo visits, clothing stores, credit card companies, cable and telephone bills, gas, grocery stores, restaurants, tickets to sporting events, toys, liquor, and, on one occasion, the services of a clown and a juggler.

The charges included a single trip to Sudbury Farms, a local grocery store, for $250, and a $125 tab at Café Decadence, a lunch and ice cream shop on Boston Post Road with no individual entrée over $7.

The government filings purportedly show a man with checkered past. Hochberg was a certified public accountant from 1985 to 1999, when he failed to renew his license, according to the documents, and was censured by the SEC in 1990 for questionable practices as an auditor.

"We see a good number of this type of case," said John Dugan, spokesman for the SEC's Boston regional office. "There's thousands of investment advisers out there that are honest and law-abiding. Once in a while, we come across a guy like this. He's up to no good, and he's just in it for his own benefit. He's essentially stealing money from his clients."

Hochberg declared bankruptcy last year.

Officials admit there is no guarantee that investors will ever see their money returned to them.

"Sometimes they do, and sometimes they don't. We're going to do everything we can to get a judgment and collect whatever we can from whatever source we can and try to get that back to investors," Dugan said.

"I don't want to discourage investors and make them believe there's no hope at all, but I don't want to unnecessarily raise their hopes."