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Carmel family members accused of securities fraud

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Three Carmel family members who sold $10.4 million in ownership interests in rental properties to elderly clients are accused by the Indiana Secretary of State’s Office of committing securities fraud.

The office’s securities division this month filed suit in Hamilton Circuit Court against attorney Charles Blackwelder, his son Chad Blackwelder and his daughter Cara Grumme. The three own CFS Inc., which also is named in the suit.

CFS, located in the Village of West Clay, is a licensed brokerage that has provided “real estate investment opportunities” since 1998, according to the company’s website.

The court appointed a receiver Feb. 20 to oversee CFS investor assets and issued a preliminary injunction barring the trio from selling securities pending the outcome of the lawsuit.

“The defendants’ actions show that they have and will continue to misappropriate investors’ funds,” the securities division argued in requesting the injunction.

The division wants the three to pay restitution to investors and civil penalties of $10,000 for each part of the Indiana Securities Act they are found to have violated.

According to the complaint, CFS did not register its securities offerings with the state, and Charles Blackwelder, who sold the securities, is not registered to sell them.

Their attorney, Mark Barnes, refuted the allegations by arguing that real estate is not considered a security under the law.

“There aren’t any securities present in this case,” he said. “What Chuck did was sell interest in real estate, and real estate isn’t a security.”

Former Indiana securities commissioner Mark Maddox, an Indianapolis attorney who has represented investors in disputes against investment firms for more than two decades, disagreed.

“Lots of real estate investments turn out to be securities,” said Maddox, who is not involved in the case. He cited real estate limited partnerships and real estate investment trusts as examples.

According to the lawsuit, CFS sold $10.4 million in ownership interests in rental properties to investors. The company’s portfolio contains 35 commercial and residential properties in the Indianapolis area valued at $7.1 million, the complaint says. It does not specify how much money investors have lost.

“That is screwing investors right out of the gate, to the tune of almost 50 percent, if I’m reading that correctly,” Maddox said.

Some clients last year began receiving foreclosure notices on at least six properties while several other homes in CFS’s portfolio became overleveraged because the entire equity in the properties had already been sold to previous investors, the suit says.

The building in West Clay that houses CFS’s office, for instance, has lost several major tenants, preventing it from paying mortgage payments and investors, Charles Blackwelder said in a November memo.

One of CFS’s commercial properties that is performing well is its building at 4905 E. 82nd St., whose tenant is the Ethan Allen Design Center, Blackwelder said.
 
On the residential side, CFS’s properties had a negative monthly cash flow of $7,106, he said in another memo in December.

“Because CFS has relied on accepting new purchasers and using the new funds to repurchase property units of deceased owners, CFS does not have the cash on hand to be able to liquidate everyone’s property units as originally planned,” Charles Blackwelder wrote to investors.

Barnes, his attorney, said CFS had been hit particularly hard by the downturn in the residential real estate market and is unable to pay investors.

“It may well be that they lose everything,” he said. “[My clients] are very sad that they cannot keep up with the debts. They have cooperated in every step with the securities division.”

Barnes said CFS offers a legitimate investment option for the elderly to invest some of their money to avoid Medicaid spend-down requirements.

The securities division declined to comment beyond its allegations in the complaint.

Besides being a lawyer, Charles Blackwelder is licensed as a real estate broker. Chad Blackwelder and Cara Grumme let their real estate agent licenses expire in July 2010, according to the complaint.

 

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  • They sold property in South Carolina
    Check out the Post and Courier newspaper under Real Estate Transactions for Charleston South Carolina on Sept. 22, 2013 it shows a property sold by Charles and Lynda Blackwelder at Fairway Dunes Villas for $500,000.00. Wonder where that money is? Where else do they have investments in other states? Now they file bankruptcy.
    • Terrible landlords too
      I rented a home from CFS for the 2 years ending 2/28/2013. Not only did CFS screw their investors, I'm never going to see my $2000 security deposit. I'll survive, but it makes me sick to think about the elderly clients they screwed. The kiddies who got to run daddy's company were possibly the worst business people I've ever dealt with. Hope they all end up in jail. And I'm not sure how the wife/mother can continue her counseling practice. Not much credibility when you're married to a thief and gave birth to two other thieves.
      • Avoiding Medicaid spend down
        Please keep in mind that reinvesting your assets into Medicaid-exempt form is a legitimate way to preserve your assets for yourself and your family while still receiving nursing home care that can top $7,000 a month. The vast majority of families cannot afford that and must rely on Medicaid. They also do not wish to be completely dependent on the Medicaid system for their long term care, thus the need to "avoid spend down." The CFS scam is reprehensible but we should take care not to criticize those investors who were trying to do the right thing for their families.
      • Avoid Medicaid Spend Down
        CFS not has not only cheated their elderly investors, they sold interests in the properties with the caveat of avoiding Medicaid spend down requirements in case they end up in a nursing home. The clients were trying to avoid paying their fair share of nursing home costs in an effort to pass their equity on to their beneficiaries. This should also be a crime. I am thinking that maybe all will get what they deserve.
        • Disgusted
          White collar crime is rampant all around us. Is there no end to this type of behavior? Jail these unethical people, all of them, and get them off the streets. I'm tired of reading this over and over again. The only things that vary from case to case are the details. Greed rules for these people, and they deserve all the prison time they are given, and more.
        • AnonymousSecret
          It's too bad the elderly folks are being targeted in these pansey schemes.
        • Doesn't sound good
          They took investment to the tune of 10 million on property worth 7 million. Their lawyer mentions "the elderly", who are the target of this "investment" according to your lead in, and Medicare is also metntioned ...licenses are expiring...their attorney is parsing words about whether or not real estate is a security...it has a bad smell to it. I wholeheartedly support CFS's right to run their own business into the ground, and to lose their own money, but when you start taking money from old folks and using it to stay afloat...the whole scenario doesn't have a good smell to it.
        • Hey Maddox
          "That is screwing investors right out of the gate, to the tune of almost 50 percent, if I'm reading that correctly". Um, no Maddox, you are not, not unless your definition of "almost" is absurdly broad. 30% is not 50%. Hopefully that is an author's typo.
        • Jail time for all
          Take away all of their licenses and assets and put them in jail for 20 years!

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