Federal Court Moves
On Pinnacle Development

A federal court moved against Pinnacle Development Partners LLC after the Securities and Exchange Commission accused the Atlanta firm of operating a Ponzi scheme that collected at least $30 million from investors.

The agency, in a complaint filed in U.S. District Court in Atlanta, said Pinnacle, which offered real-estate partnerships, used an advertising campaign in as many as 40 publications to raise money from 2,000 investors in 33 states and two foreign countries. Although the company promised 25% returns in as little as 45 days by buying and selling foreclosed homes at a profit, the SEC said, in reality it was paying returns to its newer investors by selling properties bought by its older investors -- a variation on a scheme made famous by fraudster Charles Ponzi in early 20th-century Boston.

The court ordered Pinnacle to cease its offerings, froze its assets and appointed a receiver for the firm. Its order said that defendants Pinnacle and its owner Gene A. O'Neal consented without admitting or denying the SEC's allegations and waived their right to appeal.

Mr. O'Neal and a company spokeswoman did not return messages seeking comment ahead of the court action, and couldn't be reached afterward.

Some investors in Pinnacle said that the firm had told them that it was closing down and would be returning their money. But five investors say the firm, which advertised in such publications as Newsweek, the New York Post and The Wall Street Journal, missed its deadlines for making payments.

James Karantzis, a retired engineer in Des Plaines, Ill., said Pinnacle did not pay $361,000 in principal and investment returns he was due on Sept. 26. "I'm getting the runaround," said Mr. Karantzis, who initially invested the minimum $5,000 in October 2005 and then steadily upped his stake. "I cannot get an answer out of them as to when my check will be written."

Louis Kale, a Tucson, Ariz., investor, says he was owed $35,000 on Oct. 2 and has yet to receive payment. Mr. Kale says Pinnacle has assured him that his money will arrive. Mr. Kale says he took out a second mortgage on his home to finance his initial investment and can't afford to lose that principal. His son is also waiting on $30,000 from Pinnacle that is past due, Mr. Kale says.

Pinnacle said in its full-page Newsweek advertisements that it had already handled $56 million, and expected to handle $80 million in business this year. As reported last month, California securities regulators have also been investigating Pinnacle.

In a five-sentence letter to investors late last month, Mr. O'Neal wrote that the company "believes that its business practices are legitimate and comply with all applicable laws." The letter ended, "Your trust in our business is greatly appreciated."

Investors signed partnership agreements to purchase properties that stipulated their returns and payment dates. Initially, according to some investors, it promised the 25% gains in 30 days, but the "closing period" for payments gradually lengthened to three months. The company said it performed minor refurbishments on the properties and sold them at a profit. Prior to the end of last month, investors said they had consistently received their payments on time.

Barry Minkow, a fraud investigator in San Diego, sent information on Pinnacle to the Federal Bureau of Investigation and the SEC. Mr. Minkow served time for fraud in the 1980s, but has been commended by the FBI since leaving prison for helping to "disrupt and dismantle" financial fraud he investigates.

Pinnacle had also informed investors of plans to shift operations to other cities under a new name. On Sept. 18, the company incorporated Pinnacle Consulting Partners Group LLC with the Georgia secretary of state's office. A newsletter to Pinnacle Development investors dated September 2006 announced plans for offices in several cities.

Six investors say Robert Hendree, a top Pinnacle official, told them that the new company planned to franchise spinoffs. Property managers in Detroit, Cleveland and Miami confirmed that Pinnacle is renting office space there, but the spaces consist of two or three desks and aren't occupied.

Mr. Hendree, who last month said Pinnacle was "doing perfectly fine, legitimate business," did not return numerous messages left at his office. Some investors say he also hasn't returned their calls. Pinnacle has dismantled its Web site, which now says "Under Construction."

Washington Post Co.'s Newsweek, which had been running full-page ads beginning in April, said last month that it had stopped running them pending the outcome of the investigation of Pinnacle.

Anguish over Pinnacle has spilled over onto Internet message boards, where some investors report missing their most recent payments, while others say they were paid a few days late. Denver real-estate investor Gerry Reif says he never received $53,000 due on Sept. 27. He added that he spoke this week to a Pinnacle representative, who told him she didn't know when he would be paid.

Email your comments to rjeditor@dowjones.com.