On November 20, 2009, the Commission filed suit in the United States District Court for the Northern District of Texas against Dallas-based company Capital Mountain Holding Corporation, its president Derek A. Nelson, and two other Nelson-controlled entities known as Systems XXI, Act I, LLC ("Act I") and Systems XXI, Act II, LLC ("Act II"). The Commission also named two other entities owned by Nelson, Plouteo, Inc. and Homaide Real Estate Services, Inc. as Relief Defendants.
The Commission alleges that beginning in 2008 Nelson offered and sold promissory notes issued by CMHC, Act I, and Act II. The notes were marketed through a website and by a Canada-based investment club. The proceeds were to be used to buy distressed properties. Nelson told investors that after acquiring the properties at a discount, he would improve, rent, and resell them at prices closer to the properties' true value, thereby generating the returns promised to investors. The CMHC notes promised 10% per month interest for three months. The Act I and Act II notes that paid 18% per annum for two years (Act I) and 21% per annum for five years (Act II). Nelson promised that 90% of Act I and Act II funds would be used to acquire real estate and to rehabilitate the properties for rental or resale. Nelson further represented that Act I and Act II would loan money to CMHC in exchange for first lien positions on CMHC's properties. Nelson persuaded many of the CMHC noteholders to rollover their CMHC note principal into the Act I and Act II notes because they would be "more secure."
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