Investor deep in private loans with inability to repay

[Minh T.]

Hello fellow investors! I am curious if anyone has been a part of an investment group/partnership of which you/they have been able to recover the investment.

A few years ago I was captivated by an individual that demonstrated a strong understanding of real estate and had social proof from his vast network of other real estate professionals. This person showed great selflessness and willingness to share his knowledge and be a point of resource to anyone who would give him the time of day. He was always cheerful and flaunting his success. He gained a lot of followers (investors).

This person held meetups to educate anyone open to learn about reaching financial freedom. He created avenues for new "investors" to get started. He taught them how to find deals, and if they could not find deals, he would graciously allow them to invest whatever money they had into his projects. He borrowed upward in the millions, approximately 2-4 million from my estimations.

Over the last five years, this person was unable to turn a profit, let alone break even, on a single project. However he continues to raise more capital from the never ending ambitious new investors he recruited, $25k, $50k, $200k from each at a time. To this day, he has paid back only a small fraction of his entire debt. 

Everyday he continues to live a happy and carefree life with many investors left feeling helpless. What is this considered? Is he a con? Are we fools? Is this a ponzi scam? Are we screwed? What can we do? What can we do to educate others to be aware and avoid something like this? 

[Owen Dashner]

Point of clarification - is he taking loans from people, or are they investors (equity)? Or both?  I'm not saying you are wrong but is it possible that the people who invested money with him are part of syndications where the money is tied up for several years (which may very well fit the business plan(s) of the projects?  Tough to say without seeing the docs.

If he in fact borrowed money from investors purely as debt, they would have recourse to foreclose if they had proper loan documents drawn up (Deed of Trust, Promissory Note, Mortgage, etc.). Again, it is tough to say without seeing all of the paperwork for the agreements with the lenders/investors.