The EquityBuild enforcement record is a diligence lesson about promissory notes, real estate collateral, title, lien position, and whether investor documents match the actual property record.
By Noah Green CPA CFE
This article is general education for investor diligence. It is not legal, tax, investment, or accounting advice. Before relying on any enforcement matter, verify the current court docket, regulatory posture, and recovery status. Receivership distributions and monetary-relief orders in the EquityBuild matter continue to evolve; verify the latest docket posture before publication or reliance.
The Short Version
The SEC filed its EquityBuild action on August 15, 2018. The SEC alleged that EquityBuild Inc., EquityBuild Finance LLC, Jerome Cohen, Shaun Cohen, and related property entities raised at least \$135 million through unregistered promissory notes sold nationwide to at least 900 investors.
A partial judgment was entered on August 28, 2018 with permanent injunctions and a receiver. Later court opinions in the receivership, including a 2024 Seventh Circuit opinion, characterized the matter as a Ponzi scheme. The latest receivership distribution and monetary-relief posture should be verified against the current court docket before publication.
The investor lesson is direct: a note that says real estate is involved is not the same as a verified, recorded, properly prioritized collateral position. The gap between what a promissory note promises and what the property record actually shows is the central diligence problem this case illustrates. Read the real estate syndicator diligence guide and compare the borrower-control problem in the Woodbridge case study, where a related structural failure — the sponsor secretly owning the borrower — produced a similar collapse of the collateral story.
Public Posture
According to the public primary sources listed below, the SEC filed the EquityBuild action on August 15, 2018. Jerome and Shaun Cohen consented to partial judgment, permanent injunctions were entered, and a receiver was appointed on August 28, 2018. Later Seventh Circuit receivership opinions, including the May 6, 2024 opinion in case number 23-1870, characterized the matter as a Ponzi scheme.
Publication-safe wording: the SEC alleged EquityBuild sold at least \$135 million in unregistered promissory notes to at least 900 investors. Jerome and Shaun Cohen consented to partial judgment and a receiver was appointed. The Seventh Circuit opinion in the receivership proceeding characterized the matter as a Ponzi scheme. Receivership distribution and monetary-relief posture should be verified before publication.
The Mechanism and the Diligence Problem
The offering structure involved unregistered promissory notes sold nationwide and described as tied to real estate. The SEC complaint alleged investors were sold notes and that money was misused while a receiver was appointed to secure real estate and other assets.
To understand why this structure creates a specific diligence problem, it helps to walk through how a legitimate real-estate-backed note is supposed to work and where the EquityBuild structure allegedly diverged.
In a properly structured real-estate note, the investor lends money to a borrower, the borrower grants a mortgage or deed of trust on a specific property as collateral, that mortgage is recorded in the county land records, and the investor holds a lien that can be enforced if the borrower defaults. The investor can verify this chain at every step: the note, the mortgage, the recording, the title report, the lien position, and the property value relative to the debt.
The diligence problem in cases like EquityBuild is that the investor paperwork may describe a real-estate connection without creating a verified, enforceable, senior collateral position. The note may exist. The property may exist. But the link between them — the recorded lien, the correct priority, the absence of senior debt, the absence of prior encumbrances — may not hold up when examined.
For any investor reviewing a real-estate promissory note, the question is not whether the offering documents mention real estate. The question is whether the investor can independently verify each link in the collateral chain before committing funds.
The SEC complaint alleged investors were sold notes and that money was misused. The receiver was appointed to secure real estate and other assets. Later court opinions characterized the matter as a Ponzi scheme, meaning that at least some investor returns were allegedly funded by new investor capital rather than property income or appreciation.
This Ponzi characterization matters for diligence because it signals a specific cash-flow failure: if returns are coming from new investors rather than property operations, the collateral story is already broken. The property is not generating the income the offering implied. That failure can be detected before the wire if the investor asks the right questions about property-level cash flow, occupancy, and operating statements.
Warning Signs
The following warning signs are drawn from the public record and the structural features of the EquityBuild offering. They are not a complete list, and they do not substitute for professional legal, accounting, or title review.
Unregistered notes sold nationwide. The SEC alleged the notes were unregistered. Before investing in any promissory note tied to real estate, verify whether the offering is registered with the SEC or exempt, and if exempt, which exemption applies and whether the issuer has filed the required notices.
Collateral described but not independently verified. If the offering documents describe real estate as collateral but do not provide title reports, recorded mortgage documents, or lien searches, the collateral claim is unverified. A brochure description of collateral is not a legal position.
Lien priority not confirmed. Even if a lien exists, its priority matters. A second or third lien behind senior debt and tax liens may have little practical value in a default or receivership. Ask specifically where the investor note sits in the capital stack and verify that position against the property record.
Property-level debt not disclosed. If the property already carries senior debt, that debt reduces the practical value of any junior investor lien. Request a full debt schedule for each property described as collateral.
Rent rolls and operating statements not provided. Real estate collateral is only as good as the property’s ability to generate income or hold value. If the sponsor cannot or will not provide current rent rolls, occupancy data, and operating statements, the income story is unverified.
Returns inconsistent with property cash flow. If the promised note yield is significantly higher than what the underlying properties could plausibly generate from operations, the yield may be funded by new investor capital rather than property income. This is the Ponzi-scheme cash-flow pattern.
Receiver or litigation history not disclosed. Before any investment decision, search the sponsor, the issuer, and the key principals for prior receiverships, SEC or state enforcement actions, bankruptcy filings, and civil judgments. A prior receiver appointment is a significant red flag.
Nationwide retail sales without broker-dealer oversight. Promissory notes sold to retail investors nationwide through direct sales channels, without a registered broker-dealer conducting suitability review, raise structural concerns about investor protection and disclosure quality.
Diligence Tests Before Signing or Before the Wire
The following tests are organized by the specific collateral-chain link they verify. Each test should be completed before committing funds. If the sponsor cannot or will not provide the documents needed to complete a test, treat that refusal as a red flag.
Test 1: Confirm the Offering Registration or Exemption
Before reviewing any other document, confirm whether the note offering is registered with the SEC or relies on an exemption. If exempt, identify the specific exemption (for example, Regulation D Rule 506(b) or 506(c)) and verify that the issuer has filed the required Form D with the SEC. Search the SEC EDGAR system at sec.gov/cgi-bin/browse-edgar for the issuer name and CIN number. A missing or late Form D filing does not automatically mean fraud, but it is a compliance gap that warrants explanation.
Test 2: Pull the Title Report and Read It
Request a current title commitment or title report for each property described as collateral. Read the Schedule B exceptions carefully. Schedule B lists encumbrances, easements, liens, and other matters that affect title. Look for prior mortgages, tax liens, mechanic’s liens, judgment liens, and any other recorded instruments that could affect lien priority or property value. If the title report is not current (within 30 to 60 days of your investment date), request an updated report.
Test 3: Verify the Recorded Mortgage or Deed of Trust
Ask for a copy of the recorded mortgage or deed of trust that secures your note. Confirm that it names the correct borrower, the correct lender or trustee, and the correct property. Verify that the recording information (book, page, instrument number, and recording date) matches the county land records. You can verify recording information directly through the county recorder’s or register of deeds’ website for most Illinois counties where EquityBuild properties were located.
Test 4: Confirm Lien Priority
After confirming the recorded mortgage, determine its priority relative to other liens on the property. Priority is generally determined by recording date, but tax liens and certain statutory liens may take priority regardless of recording date. Ask the sponsor to provide a lien priority schedule for each property and verify it against the title report. If your note is secured by a junior lien, ask what the senior debt balance is and whether the property value supports both the senior debt and your position.
Test 5: Request the Full Property Debt Schedule
Ask for a complete debt schedule for each property described as collateral. The schedule should list every recorded mortgage, line of credit, mezzanine loan, and other debt obligation, along with the current balance, interest rate, maturity date, and lender name. Compare this schedule to the title report and the recorded instruments. Any discrepancy between the sponsor’s debt schedule and the public record is a significant red flag.
Test 6: Review Rent Rolls and Operating Statements
Request current rent rolls showing each unit or tenant, lease start and end dates, monthly rent, and payment status. Request at least 12 months of operating statements showing gross income, vacancy, operating expenses, and net operating income. Compare the net operating income to the debt service on all recorded liens. If the property cannot cover its debt service from operations, the collateral story depends on property appreciation or new investor capital rather than income.
Test 7: Check Sponsor and Principal Background
Search the SEC EDGAR enforcement database, the SEC litigation releases page, PACER for federal court filings, and state securities regulator databases for the sponsor entity, the issuer entity, and each named principal. Search for prior receiverships, injunctions, cease-and-desist orders, bankruptcy filings, and civil judgments. A prior enforcement action or receiver appointment does not automatically disqualify a sponsor, but it requires a specific, documented explanation.
Test 8: Verify Note Terms Against Recorded Documents
Read the promissory note carefully and compare its terms to the recorded mortgage or deed of trust. Confirm that the collateral description in the note matches the property description in the recorded instrument. Confirm that the note amount does not exceed the collateral value supported by a current appraisal or broker price opinion. Confirm that the note’s maturity date and payment terms are consistent with the property’s projected cash flow.
Test 9: Confirm Receiver and Litigation History
Search PACER and state court databases for any prior or pending receivership, injunction, or enforcement action involving the sponsor, the issuer, or the properties. A receiver appointment means a court has already determined that assets need to be protected from the sponsor. If a receiver has been appointed in any related matter, that history must be understood before any new investment decision.
Test 10: Test the Yield Against Market Comparables
Compare the promised note yield to current market rates for similar real-estate debt instruments with similar collateral, priority, and term. If the promised yield is materially higher than market comparables, ask specifically how the sponsor generates the excess return. If the answer is not supported by property-level cash flow data, the excess yield may be funded by new investor capital.
How to Read the Primary Source Documents
The SEC complaint (comp24237.pdf) is the SEC staff’s allegations, not proved facts. Read the factual allegations section to understand the specific conduct the SEC alleged. Note the dates, dollar amounts, and property descriptions. Compare the complaint’s description of the offering structure to the documents you received as an investor or prospective investor.
The SEC litigation release (LR-24247) is a summary press release. It provides the filing date, the parties, and the relief sought. Use it to confirm the case number and the court, then pull the actual docket from PACER for current status.
The Seventh Circuit opinion (23-1870, decided May 6, 2024) is a federal appellate court opinion in the receivership proceeding. It addresses legal issues that arose during the administration of the receivership estate. Read the background section for the court’s description of the scheme. Note that the court’s characterization of the matter as a Ponzi scheme reflects the receivership record, not a criminal conviction or a civil trial verdict on the merits.
When reading any enforcement document, distinguish between allegations (what the SEC or DOJ says happened), consent judgments (what the defendant agreed to without admitting or denying), and proved facts (what a court or jury found after a contested proceeding). EquityBuild involves a consent to partial judgment, not a contested trial verdict.
By the Numbers
| Metric | Public-source figure | Posture | Diligence meaning |
|---|---|---|---|
| SEC alleged notes sold | At least \$135 million | SEC complaint allegation | Note size does not prove collateral quality; verify each property position independently |
| SEC alleged investor count | At least 900 investors | SEC complaint allegation | Nationwide retail note sales require disciplined, property-specific document checks for each investor |
| SEC filing date | August 15, 2018 | SEC litigation release LR-24247 | Docket posture and receivership distribution status should be verified before publication or reliance |
| Partial judgment and receiver date | August 28, 2018 | Public record | Consent judgment wording must be distinguished from proved trial facts; receiver appointment signals court-ordered asset protection |
| Asset class | Chicago-area multifamily and single-family real estate | SEC complaint and public record | Property-specific diligence — title, lien, debt, rent roll — should match each individual asset, not the portfolio as a whole |
| Seventh Circuit opinion date | May 6, 2024 | Justia public opinion, case 23-1870 | Appellate characterization of Ponzi scheme reflects receivership record; verify current distribution and recovery status |
Source footer: Figures and posture are drawn from the public primary sources listed below. Receivership distribution and monetary-relief posture should be verified against the current court docket.
Buyer / Investor Takeaway
If you are evaluating a real-estate promissory note, the offering documents are the starting point, not the finish line. The EquityBuild public record illustrates what happens when the gap between the offering description and the actual property record is not closed before the wire.
Before you commit funds, close the following gaps:
First, confirm that a lien actually exists and is recorded. A note that describes real estate as collateral is a contractual promise. A recorded mortgage is a legal position. They are not the same thing, and only one of them can be verified in the public land records.
Second, confirm your lien position in the capital stack. A junior lien behind senior debt and tax liens may have little practical recovery value in a default or receivership. Know exactly where you stand before you invest.
Third, confirm that the property can support the yield. If the promised return is not supported by property-level operating income, ask where the cash comes from. If the answer is new investor capital, the structure has a Ponzi-scheme cash-flow pattern regardless of whether any fraud has been alleged.
Fourth, check the sponsor’s background before the wire, not after. SEC EDGAR, PACER, and state securities regulator databases are publicly available. A prior enforcement action, receiver appointment, or bankruptcy filing is discoverable before you invest.
Fifth, treat document refusals as red flags. A sponsor who cannot or will not provide title reports, recorded mortgage documents, rent rolls, and operating statements is asking you to invest on trust rather than verification. That is not a diligence standard that protects your capital.
For a comparison of how cash-use failures manifest in a renovation-focused structure, see the Robert Morgan case study. For a comparison of how a hidden borrower-sponsor relationship can undermine the collateral story, see the Woodbridge case study. For a broader framework of pre-wire controls in real estate syndications, see the SPP real estate syndicator diligence guide.
SPP Bottom Line
Real estate collateral is not a slogan. It is a documented legal position that can be tested before you invest. The EquityBuild public record — SEC complaint, consent to partial judgment, receiver appointment, and Seventh Circuit characterization of a Ponzi scheme — illustrates the cost of treating a note’s collateral description as a substitute for independent verification.
The diligence tests in this article are not complicated. They require title reports, recorded mortgage documents, lien searches, debt schedules, rent rolls, and operating statements. They require a background check on the sponsor and principals. They require a comparison of the promised yield to what the property can actually generate from operations.
None of these tests require specialized expertise beyond what a competent CPA, attorney, or title professional can provide. What they require is the discipline to ask for the documents, read them carefully, and refuse to wire funds until the collateral chain is verified.
If the sponsor cannot support the collateral story with documents, the brochure yield is not a reason to invest. It is a reason to ask harder questions.
Primary Sources
- SEC Litigation Release, EquityBuild, LR-24247: https://www.sec.gov/enforcement-litigation/litigation-releases/lr-24247
- SEC complaint, EquityBuild: https://www.sec.gov/litigation/complaints/2018/comp24237.pdf
- Seventh Circuit receivership opinion, EquityBuild, case 23-1870, May 6, 2024: https://law.justia.com/cases/federal/appellate-courts/ca7/23-1870/23-1870-2024-05-06.html