'Investment scheme' alleged at Chatham property, elsewhere in Colorado securities lawsuit

CHATHAM — A four-bedroom house in Chatham is involved in a Denver District Court complaint against a Colorado-based company that offers co-ownership of luxury vacation homes on Cape Cod and other coveted destinations.

Founded in 2013, Lifestyle Asset Group's business model centers on forming multiple limited liability companies, or LLCs, and selling membership interests to investors before using those funds to purchase vacation homes, according to a lawsuit filed on Nov. 30 by Colorado Securities Commissioner Tung Chan.

Investors were told that the properties would be sold after a certain term period and the profits from the sale would be distributed among them, and that money would be refunded if a property did not raise its minimum investment.

'Weren't told the whole story'

Instead, the plan evolved into a "a complicated, decade-long, expansive property investment scheme," Chan told the Times in an emailed statement. Lifestyle Asset Group is alleged to have misled investors about amounts raised, loans, undisclosed side deals, the properties, and other information when it struggled to make up gaps in financing, according to the complaint.

"We allege the investors weren't told the whole story before investing, that there were material misrepresentations and omissions and that it is not only unfair to investors, but also against the law," Chan said to the Times.

Lifestyle Asset Group co-founders Richard Keith, Tommy Robinson, and Karla Jones are also listed as defendants. Lifestyle Asset Group and Karla Jones did not respond to requests for comment.

Jeffrey Thomas, an attorney with Linden Law Partners in Denver, listed as the top lawyer representing the defendants, could not be reached for comment through email or phone.

As of Thursday, a judge had not yet ruled on a motion to dismiss filed by the defendants on Feb. 2, according to the clerk's office at the district court. The Times has filed a public records request with the court for copies of the motion to dismiss and other records.

A ruling by a judge was also not available on Chan's request for an injunction to prevent Lifestyle Asset Management and its entities from violations of the Colorado Securities Act. The clerk's office said that decision would likely come when the case is ultimately decided.

Lifestyle Asset Group and its affiliates have received at least $10.9 million in principal payments and have repaid about $3.3 million, according to Chan's lawsuit.

How a Chatham house is involved

The Chatham house at 73 Rowland Drive is highlighted in the complaint as an instance where the company allegedly failed to abide by the terms outlined in its offering documents to investors.

Lifestyle Cape Cod — an entity set up by Lifestyle Group Asset — offered sales of shares in its LLC priced between $50,000 and $165,000 per share, according to a March 30, 2020 offering document cited by Chan in the complaint.

The document set the minimum investor total as $2,950,000 and the maximum as $3,230,000.

The purpose was to buy the 2,450-square-foot house with four bedrooms and 5.5 bathrooms. Nestled on a quiet dead-end street, the house overlooks picturesque Frost Fish Creek and sits at the end of a long, winding driveway.

LLC members would be able to book vacations at the home and could book stays at properties in the Elite Alliance time-share network for an additional fee, according to the complaint.

Chatham house purchased without having money on hand, complaint says

Lifestyle Cape Cod purchased 73 Rowland Drive without having the money on hand or meeting its minimum as outlined in its offering documents, the complaint alleges.

On April 3, 2020, Lifestyle Cape Cod bought 73 Rowland Drive for $1 from Mark William Johnson and Jane Clayson Johnson, trustees of the Mark William Johnson 2010 Revocable Trust, according to Barnstable County Registry of Deeds records. The sellers accepted $2.6 million worth of shares in Lifestyle Cape Cod without paying for the shares, reads the complaint.

"This was not a bona fide sale of interests and the offset was not disclosed to investors," according to the complaint.

A notice of sale of securities filed on April 14, 2020 with the U.S. Securities and Exchange Commission states that $470,000 of the $3,230,000 offering had been sold.

Eventually Lifestyle Cape Cod paid the sellers just under $1.6 million after obtaining money from later investors in Lifestyle Cape Cod and reduced the number of shares held by the sellers accordingly, Chan alleges.

Renovation but then lack of sale

The house at 73 Rowland Drive was "renovated from the studs in 2018" by Dennis-based Reef Builders, according to Lifestyle Asset Group. The house was originally overhauled for resale on the regular market, said Reef Builders President Matt Teague to the Times in an email, but the owners pursued the fractional ownership option when the house would not sell after a year or so.

In a website post about the sale dated April 9, 2020, Lifestyle Asset Group said the company had "paved the way so a family from Iowa was able to invest in a gorgeous $2,700,000 Chatham, Cape Cod vacation property for just $470,000."

The complaint also names other alleged instances, such as a New York City property where management had fallen behind on condominium fees that the property was foreclosed on. In most cases, investors were told properties would be purchased outright and own them free and clear of debt, but "many of the properties were in fact encumbered by undisclosed mortgages or loans," Chan alleges.

Cape Cod and Islands officials eye fractional ownership restrictions

As Cape Cod and the Islands continue to navigate a housing crisis, some local officials worry that the trend of fractional ownership could place further stress on its housing supply and make it harder for year-round residents to secure housing.

Some municipalities have restricted or banned fractional ownership in their communities, such as Provincetown and Tisbury. Nantucket and Edgartown are expected to vote on the issue at town meetings this spring.

Truro and Eastham are also now mulling town meeting articles to ban the business model.

Zane Razzaq writes about housing and real estate. Reach her at zrazzaq@capecodonline.com. Follow her on X @zanerazz.

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This article originally appeared on Cape Cod Times: Colorado securities lawsuit names Chatham house offered to co-owners