Kris Krohn, SEC and Strongbrook: A Summary of the Facts

In 2010, the SEC conducted an investigation into the companies that are today known as Kris Krohn and Strongbrook. The following should serve as a summary of the investigation, and includes both the SEC findings on Kris Krohn, and Strongbrook's position.

Orem, Utah (PRWEB) March 21, 2013

Nearly three years ago Kris Krohn and Steve Earl, and a number of different business entities, were included as part of an SEC investigation that began in 2010. In 2010 when the SEC investigation was initiated, Strongbrook was operating under the name of The Companies (TC) LLC, a group of entities that included REIC. Today The Companies (TC) LLC does business as Strongbrook, and will be referred to as Strongbrook in this press release. This press release contains a brief summary of the investigation, complaint, settlement, and outcomes.

While SEC investigations are confidential and Strongbrook is cannot be certain as to what triggered this particular investigation, many SEC investigations are prompted by complaints from disgruntled former employees and Strongbrook believes that is possibly what happened in this case.

During a 14-month investigation, the SEC found no misuse of investor funds. SEC regulators focused on two problems: One concerned the way Strongbrook had raised private investment capital and the other concerned how Strongbrook had valued a particular bulk purchase of properties. Neither complaint had any bearing on Strongbrook's core business of helping its clients invest in real estate. The complaints were about how Strongbrook had raised capital for operations, and had raised capital for the company's own real estate purchases.

Strongbrook settled with the SEC regarding these two complaints. The settlement required Strongbrook to neither to admit nor deny any violation. Strongbrook and it's principles agreed to pay the minimum fine required by law. According to Strongbrook's SEC counsel, Brent Baker, “The complaint filed by the SEC does not even allege any intentional wrongdoing by any of the companies, nor by Kris Krohn or Steve Earl.” No additional restrictions were placed on future business activities by Strongbrook, Kris Krohn or Steve Earl, other than restrictions that apply to any other company.

Strongbrook cooperated fully with the SEC investigation, because according to Strongbrook Principles, “We believe appropriate regulations and oversight are essential to protect clients and investors in the real estate market. Strongbrook has always been, and remains, committed to adhering to the spirit and the letter of the law in all our business dealings.”

The Investigation

The investigation lasted for 14 months. Regulators examined a large volume of documents and conducted interviews of Strongbrook's founders, employees, investors and clients. Strongbrook cooperated fully with the investigation, which in the opinion of the company's Principles, “was conducted fairly and thoroughly by a highly professional team from the SEC.

The SEC did not find any fraudulent use of funds. However, they did find two issues that led to the filing of a complaint against Strongbrook (then The Companies) along with Kris Krohn, Steve Earl and Michael Krohn.

The Complaint

The SEC complaint alleged two violations by Strongbrook. The first concerned the method of raising capital for the company. Companies seeking to raise capital through the sale of securities must either register the offering with the SEC or rely on an exemption from registration. Most of the SEC's exemptions from registration prohibit companies from engaging in a “general solicitation” or “general advertising” about the investment offering – this included, among other things, advertising in newspapers or on the Internet. The Obama administration and Congress have since passed a law requiring the SEC to do away with this restriction for offerings similar to those at issue in the SEC's investigation. The SEC issued “guidance” in August 2012 but has yet to create a new rule and the old rule remains in place.

The second complaint concerned the way that Strongbrook had valued a group of properties they had purchased in bulk. The valuation was included in a document that they used to raise private investment capital. At that time, like many much larger operations, Strongbrook was engaged in the bulk purchase of REO (bank owned) properties. Strongbrook conducted three forms of valuation: one known as BPO (broker price opinion), one from an external valuation service and one based on an analysis of county records. There were huge variations in the valuations, and they selected the middle one from the external valuation service. The service was provided by RealQuest, a company that obtains its data from a NYSE listed company used by many title agencies for valuation. The SEC objected to the decision to use this valuation method without disclosing the lowest valuation as well.

Neither complaint had any bearing on Strongbrook's services to clients. Regarding the valuation issue, Strongbrook no longer purchases properties in bulk and have completely overhauled their valuation process.

Strongbrook today acquires only individual properties. More than three years have passed since Strongbrook has made any large bulk home purchases. They currently conduct no bulk purchases. Their valuation policy, which is strictly enforced, requires a professional on-the-ground inspection of each property, along with extensive contextual market research before any property purchase is made.

The Settlement

Confronted with the SEC complaints, Strongbrook faced a choice. In consultation with their attorney (himself a former SEC regulator) they made a decision to move forward with their core business and settle with the SEC.

The terms of the settlement were as follows:

−    Strongbrook agreed to neither admit nor deny the SEC's complaints against them.
−    Strongbrook agreed to a 3rd party audit.
−    Strongbrook agreed to pay the minimum fine required by law.
−    Strongbrook agreed to notify all of their investors of the outcome of the investigation.
−    Strongbrook agreed to provide a copy of the 3rd party audit to their investors and inform them that they have the right to seek rescission of their investment.

The settlement did not find Strongbrook guilty of any intentional wrongdoing and it did not place any additional restrictions on their future business activities.

The Outcome

For a growing company engaged in transactions totaling multiple millions of dollars, regulation is a fact of life. Naturally, the experience of a 14-month investigation and official complaint is costly in terms of dollars and time, however, Strongbrook believes that appropriate regulation is essential to protect clients and investors in today's business world. Strongbrook principles have said of the investigation, “We found the SEC both fair and professional throughout this process, and we did our best to cooperate with them fully from the start. We have emerged from the experience stronger, wiser and even more meticulous in our adherence to the regulations that govern our fields of operations. For Strongbrook, it is not enough to obey the letter of the law, essential though that is. We are committed to a mode of business that is transparent and truthful in every respect, so that we can make a tangible contribution to the lives of our clients and our community.”

Looking Forward

Strongbrook is a company with a big purpose. In the words of founder Kris Krohn: “We believe in America. We exist to help people from all walks of life realize their own American dream. We give them access to a proven system of personal entrepreneurship, while teaching the principles of conscious creation and the laws of success. Our task goes far beyond providing real estate opportunities. By launching tens of thousands of new entrepreneurs, Strongbrook can help fuel the recovery and growth of the greatest economy on the planet.”

Salt Lake Tribune, August 7, 2012
SEC v. The Companies, LLC, et al., 2:12-cv-00765
Consent Case 2:12-cv-00765-DN
Salt Lake Tribune, August 7, 2012,
Consent TC Case 2:12-cv-00765-DN
Salt Lake Tribune, August 7, 2012,
SEC v. The Companies, LLC, et al., 2:12-cv-00765

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