Brides-to-be may need to find a new wedding venue after the U.S. Securities and Exchange Commission filed a lawsuit Tuesday against the founder of The Falls Event Center, a Utah-based chain with locations in Roseville, Elk Grove and Fresno.
The lawsuit alleges that The Falls CEO Steven Down raised more than $120 million from 300 investors since 2011, often at continuing education seminars he sponsored for dentists, by telling them his event centers were making a profit. In reality, the suit claims, The Falls' accounting records show none of the eight centers in five states has been profitable under generally accepted accounting principles since their inception.
While presenting to a group of Seattle investors in 2017, Down allegedly said The Falls' two buildings in Elk Grove were profitable in their first month and would yield a 35 percent annual return. In fact, the SEC's lawsuit claims, the Elk Grove center posted a net loss of roughly $114,000 in its first month and $84,000 in its second after opening in November 2014.
Down allegedly made a similar claim in March 2017 regarding the Fresno center, which lost $52,000 under GAAP in its first month but posted a net gain of $13,000 using the modified accrual basis, a business-friendly accounting system that accounts for delayed revenue.
Premium content for only $0.99
For the most comprehensive local coverage, subscribe today.
Stating the centers were profitable, as Down allegedly did in an October 2015 newsletter, without disclosing that The Falls was measuring modified accrual profit was misleading and negligent at best, the SEC argued. What's more, the lawsuit claims, it wasn't true: only two of the five centers operating at that point were posting a modified accrual profit.
The Falls owes Sacramento County more than $79,000 in back taxes, according to public records. A notice of trustee sale posted on the Elk Grove center's front doors last week claimed the business had not paid $8 million it owed on a construction loan, the Sacramento Business Journal reported.
The SEC issued a permanent injunction against Down in 1998 for an alleged multi-level marketing pyramid scheme he ran in Utah. Down did not admit guilt but accepted the government's judgment.
Benjy Egel: (916) 321-1052, @BenjyEgel