Someone raises capital (usually through investment) and buys a We Buy Ugly Houses franchise from the parent company HomeVestors of America, which incidentally also sells Subway franchises. Technically HomeVestors isn’t committing fraud, they’re just sleazy. The franchises legally pay rock-bottom prices for homes in poor repair or that the homeowners need to sell ASAP, hold them for a few months paying contractors to get them into better shape, and then sell them on the normal real estate market. The practice is known as flipping, and basically it’s like selling your house to a pawn shop. As you can imagine, this sort of quick cash business attracts more than its fair share of white collar crooks.
What this woman did was tell the investors they’d each be investing in one home and would get all the profits, minus her company’s share, projected at a 6 to 15%. But she ended up grouping the investors together on homes without telling them (forging their signatures in some cases) so that the profits weren’t enough to pay them all back. She then used new investment money to pay back the investors demanding their return, and because that meant she didn’t have that new investment capital for additional home purchases, she continued grouping more and more investors onto a small pool of homes.
It’s maybe worth noting that she got caught doing this with her own company, since she and her former business partner lost their We Buy Ugly Houses franchise in 2011 due to being deeply in debt. She just wasn’t very good at flipping houses quickly and she overpromsed to her investors so she could skim bigger profits. Since franchises normally have rules about how big a salary the owner can take, I would guess that she took an even bigger salary from her own company. Basically she defrauded investors to line her own pockets.
TL;DR - She ran a real estate Ponzi scheme and got caught when her investors ordered an outside audit.
Small note to @markfrauenfelder: You may want to add “Former” to the front of the headline. I share your dislike of the company, the billboards, the mascot and the parasitic industry. But they really could come after you for libel since she hasn’t been a franchisee for six years.
