SEC says scheme defrauded investors
Silicon Sage, company executive Sanjeev Acharya charged in probe of real estate developer
SUNNYVALE >> Just two years after developer Sanjeev Acharya touted a mega-village that would have ushered in dramatic changes to north San Jose, the South Bay executive faces fraud allegations and the implosion of his Bay Area real estate empire.
Hundreds of investors who paid about $119 million to invest in real estate projects launched by Acharya and his company Silicon Sage Builders face the grim prospect that they were defrauded through a financial web woven by the real estate developer, according to a complaint filed by the Securities and Exchange Commission.
The fraudulent activity allegedly orchestrated by Acharya and Silicon Sage Builders began around August 2016, according to a complaint that the SEC filed on Dec. 21 in the U.S. District Court for Northern California.
“Since at least August 24, 2016, Silicon Sage Builders and all but one of its real estate development projects have not been profitable,” the SEC complaint alleges.
The developments were unable to generate enough cash flow to pay off investors or even provide income for Silicon Sage, the SEC claims.
“Acharya falsely described Silicon Sage Builders and all of its real estate projects as efficient, successful, and profitable,” the SEC complaint alleged.
The stark reality was that nearly all of the Silicon Sage projects developed by Acharya were in financial distress.
“From 2016 to 2019, all but one of the (Sanjeev Acharya) projects had significant cost overruns and did not generate enough revenue to cover the overruns, leaving Silicon Sage Build
ers with mounting, undisclosed liabilities to investors, totaling over $18 million by 2019,” according to the SEC complaint.
Despite the difficulties, Acharya sketched a rosy picture for his unwitting investors and extracted large sums from them.
Most of the investors were members of the South Asian community in Northern California, according to the SEC complaint.
“Since August 24, 2016, Silicon Sage Builders has raised approximately $119.2 million from approximately 250 investors through a continuous series of misrepresentations and omissions and other deceptive conduct,” the SEC complaint claims.
Right in the middle of this stretch of financial struggles, Acharya unveiled plans for a mega village in north San Jose that would sprout on farmlands and consist of shops, offices, hotel rooms, enter tainment centers, homes, and open spaces.
The development at the time was an undertaking that represented a great departure for a real estate executive whose expertise to that point consisted primarily of the development of modestly sized residential projects.
Despite the financial woes documented by the SEC, some of Silicon Sage’s projects have been completed. One of the most recently finished was Aura, a residential complex at 180 Balbach St. in downtown San Jose.
Acharya organized multiple campaigns to raise funds so projects and operations could be funded, the SEC complaint states.
Acharya, as alleged in the complaint, misled investors into believing the payments they received were derived from Silicon Sage Builders’ profits.
In reality, the SEC claims, Silicon Sage Builders and Acharya had used new investor funds to pay earlier investors.
The SEC complaint also alleges that Acharya misled investors as to the amount of money the company was attempting to raise. The
SEC claims that Acharya falsely told investors they could redeem their investments despite there being insufficient funds to meet redemption requests.
One of the financing campaigns was known as the Bridge Fund, which was formed in 2014 and whose purpose was to help bankroll an array of construction activities for the Silicon Sage projects.
Silicon Sage’s Bridge Fund raised tens of millions of dollars over a period of years from investors. The financial status of the fund, as documented in the SEC complaint, raises questions about whether investors will be repaid.
“As of October 2020, the Bridge Fund has $19.58 in its bank account, and owes the Bridge Fund investors approximately $40 million,” the SEC filing shows.
Around March 2020, Acharya began to suggest to his investors that economic woes linked to the coronavirus had squeezed his company’s finances.
And Silicon Sage continued to complete real estate deals at the height of its difficulties, Santa Clara
County property documents show.
In October 2020, an affiliate controlled by Acharya paid $9 million for 2.5 acres at or near 2101 Alum Rock Ave. in San Jose, part of the property the company needed to develop 796 residential units along with retail and restaurant spaces at the site.
Later in the year, in meetings with investors around August 2020, Acharya appeared to acknowledge that he had made some errors over the years, according to the SEC documents.
Acharya said he should have been more transparent with investors, the regulatory agency’s complaint stated.
“I should have done it,” Acharya said at an investment meeting. “Back then, maybe my thinking was that everybody’s returns will come. So … I really didn’t bother to get into details, but what I was not thinking, what my mistake was that I wasn’t thinking a downside scenario.”
However, after those July, August, and September meetings with investors, Acharya continued to
solicit funds — successfully in many instances — from investors, including some brand-new investors, the SEC complaint states.
As recently as October 5, 2020, Acharya has orally discouraged at least one investor from bringing their concerns to the SEC. From mid-March through late October, Acharya has raised roughly $17.4 million from at least 50 investors, of which approximately 30 are new, the SEC stated.
“Despite his promises of transparency, Acharya continues to provide inconsistent and contradictory financial information to new and existing investors,” according to the SEC complaint.
According to regulators, the SEC is seeking preliminary and permanent injunctions, the appointment of a receiver over Silicon Sage Builders, asset freezes, disgorgement with prejudgment interest, and financial penalties against the defendants, as well as an order prohibiting the destruction of documents and accounting.