A former Lititz resident now living in North Carolina has been accused of fraud by the U.S. Securities & Exchange Commission.
Marlin S. Hershey and a business partner allegedly raised $20.2 million from dozens of investors, including family and friends, in at least 16 states. The alleged scheme lasted from 2009 into 2017.
As described by the SEC, Hershey and co-defendant Dana J. Bradley allegedly claimed the money would go into companies that were lending money to developers.
These developers were buying and rehabilitating distressed rental housing, according to the SEC.
Hershey and Bradley, founders of a real estate investment company named Performance Holdings, promised investors an annual return as high as 12%, the SEC alleges.
Instead, according to the SEC, the defendants used the investors’ funds to pay themselves $2.7 million in commissions, repay earlier investors and pay debts owed by a company that Hershey owned.
Hershey and Bradley continued to accept money from investors earmarked for one developer even after the developer had defaulted on an earlier loan from Performance Holdings and was no longer accepting additional loans.
Filed by the SEC on Sept. 27 in federal court in Asheville, North Carolina, the complaint is a civil case, not a criminal one.
The commission is asking the court to make the defendants give up their “ill-gotten gains” and to levy an unspecified civil penalty.
The SEC’s allegations were disputed by one of Hershey and Bradley’s attorneys, Richard Kronk of Charlotte, North Carolina.
“We disagree with the SEC’s characterization of our clients and to that end we intend to vigorously defend our clients in and through the court process,” Kronk told the Charlotte Observer.
Hershey, 50, of Cornelius, North Carolina, and Bradley, 49, also of Cornelius, are accused of three counts of fraud and one count of selling securities without being a registered broker.
The community’s newspaper, Cornelius Today, described the pair as “prominent Cornelius businessmen and active in philanthropy.”
The sales pitches used by the defendants, the SEC alleges, “made untrue statements of material fact and omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading.”
The SEC filing does not name the victims of the alleged scam.
The allegations mark the third time that Hershey has been linked to illegal investments, according to federal court records.
In 2007, the SEC accused Hershey of insider trading, saying he got a tip from a LendingTree executive that LendingTree was going to be acquired at a “substantial premium.” Hershey bought LendingTree stock before the acquisition and sold it afterward, pocketing a profit of $14,000. He also shared the tip with three associates who also bought LendingTree stock, pocketing a total profit of $74,000.
Court records show Hershey, without admitting guilt, agreed to forfeit his $14,000 profit and pay a civil penalty of $88,000.
In April 2018 and February 2019, Hershey was named in two indictments handed up by a Colorado state grand jury as an “unregistered promoter” of promissory notes being sold by a commercial real estate company.
The company’s owner was accused of 14 counts of fraud; Hershey, who was paid a 10% commission, was not charged.
The indictments list the investors recruited from Pennsylvania, a territory handled by Hershey. The list includes 22 individuals, couples and trusts from Lancaster County who invested a total of $3.0 million.
But the indictments do not specify how all of the local investors fared, saying only that “many” of the investors Hershey recruited lost money.