The Securities and Exchange Commission has resolved a 1½-year-old fraud case it filed against Michael Shustek and his Las Vegas-based Vestin Mortgage LLC real estate investment trust.
But a legal expert who has handled dozens of cases involving the SEC said the case should have been dismissed and that the regulator “completely surrendered.”
Shustek, who has since retired, was ordered to pay a $300,000 fine and directed not to involve himself as an officer or director of any public company for five years and prohibited him from participating in the issuance, purchase, offer or sale of any security. He’s allowed to purchase or sell securities from his own personal accounts.
The SEC had charged Shustek with violations of federal securities laws in a complaint filed on July 29, 2021, in U.S. District Court in Nevada. The complaint alleged that since at least 2012, Shustek enriched himself and a REIT that he controlled at the expense of two companies that he had founded earlier. According to the complaint, Shustek drained $29 million from the companies in order to funnel the money into the REIT, and later directed the companies to enter into a series of money-losing transactions in which the same six buildings were repeatedly re-sold. The complaint also alleges that Shustek violated his fiduciary duties to the companies in two additional securities transactions.
But in a settlement in which Shustek neither admitted nor denied the allegations, he agreed to the terms.
A spokesman for Shustek said the claims the SEC made against him were false.
“The SEC withdrew their false and totally unsupported claims that Mike Shustek and Vestin Mortgage LLC engaged in a $29 million fraud, admitting in court that ‘the commission is withdrawing all scienter-based claims for relief’ and dismissing those false claims,” spokesman Damon Elder said on behalf of Shustek.
“In order to end this costly litigation and move on with his life, Mr. Shustek agreed to a standard ‘no admission, no denial’ settlement involving solely negligence-based claims that included a $300,000 fine, which was 1 percent of the SEC’s original exaggerated demands, and no disgorgement. Mr. Shustek always relied on attorneys at nationally recognized law firms with decades of experience to prepare the SEC filings that were the focus of the SEC’s allegations,” he said.
An expert in securities law not involved with the case said it was unusual for the SEC to provide a press release about the case, but not say what actually happened.
“They allege fraud, they talk about the allegations in their press release,” said Los Angeles attorney James W. Spertus of the Spertus, Landes, Joseph law firm. “They say the defendant consented to judgment, but they leave out that he didn’t consent to the fraud judgment that they’re implying he did consent to. It implies something that isn’t true. It’s slippery.”
Spertus said in his nearly three decades of practice he has never seen an SEC case end the way the Shustek case ended.
“It appears to be a complete SEC surrender,” he said. “It should have been dismissed.”