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YARMOUTH — A Cape Cod educator who had investments with Levee Breaks Investment Group knew something was wrong when the monthly checks from the company stopped coming in April 2021.
She said she had invested thousands in the real estate company, founded by Brian Serpone of Yarmouth, with the expectation that she would receive 10% annual interest, paid monthly, on her investment.
It turns out the promissory note she bought from LBI was an unregistered security, and LBI, based in Yarmouth, was not registered with the state’s Securities Division, as required by Massachusetts law.
The broker-dealer employed by LBI, Dennis Serpone, Brian Serpone’s uncle, wasn’t registered with the state either. “His registration as a broker-dealer agent was terminated in 1998 following regulatory action,” according to a complaint filed against LBI by the state Oct. 15.
Dennis Serpone denied the LBI allegations listed in the complaint during a telephone interview Thursday. He said he was never employed by LBI. Numerous efforts were made to reach Brian Serpone, including three emails, a phone call and a direct message on Facebook, but he did not respond to any of them. A message left at The Music Room in West Yarmouth, where Brian Serpone is a principal owner, was never returned.
Dennis Serpone, who described his role as handling investor relations, publicized and held regular events for single people such as dances and barbecues. Many of the people who attended the events became LBI investors.
Unfortunately for the Cape educator — who asked that her name not be used because she works on Cape Cod — and an estimated 55 other investors, LBI filed for Chapter 7 bankruptcy Oct. 22. It is unclear whether the investors will get their money back.
Securities Division files complaint against Levee Breaks Investment
The bankruptcy filing came a week after the state Securities Division filed a civil administrative complaint against LBI and Dennis Serpone for violations of Massachusetts General Law, and willful violation of a consent order they had entered into with the state in May 2020.
Two other investors who spoke with the Times asked that their names not be used because the experience has been emotionally devastating and embarrassing, but they provided documents to the Times including emails, bankruptcy notices, photographs and letters to LBI noteholders regarding the state’s order for the company to repay the promissory notes.
Chapter 7 bankruptcy will allow LBI to liquidate its properties to pay off creditors. But unfortunately for investors, whatever money the company raises may fall short of what it owes its investors.
The trustee for LBI, David Madoff, wouldn’t release a list of properties for sale as this article was going to press because he said he was still in the process of determining how many properties were in the company’s portfolio, how much money was owed on them, and how many investors are involved.
A second letter to noteholders from LBI sent in September, however, listed four properties as having sales agreements on them. The prices ranged from $525,000 to $650,000 per house. Four additional properties were listed with estimated sales prices that ranged from $549,000 to $649,000 per house.
“Brian Serpone and Richard Serpone (Dennis’ brother who lives in Yarmouthport) were the sole members and managers of LBI,” a limited liability company that purchased, renovated, sold and rented distressed properties on Cape Cod, according to the Oct 15 administrative complaint filed by the state Securities Division.
Levee Breaks Investment ‘a family of investors’
In 2012, LBI started selling promissory notes for $10,000 each. The notes were used to fund their business operations. The notes promised to return 10%, paid in monthly installments, with a one-year term.
In 2018, LBI began a profit-sharing program with some notes, which were sold in $20,000 increments, according to the Oct. 15 complaint. Investors could share in the profits of the sale of a property or share in the annual rental income from a property.
Dennis Serpone sent frequent emails to investors giving updates on projects and new investment opportunities. His role was to raise capital for LBI. Over eight years, he and LBI raised more than $3 million from investors, according to the state’s complaint.
Dennis Serpone disputed the state’s accusations during an interview with the Times, saying he was never employed by LBI and never paid by LBI.
“I only managed investor relations,” he said in the telephone interview.
The state complaint claims Dennis Serpone sent emails telling investors about meet-and-greet opportunities, offering tours of properties, and “wined and dined them.” This was confirmed by the three investors who spoke to the Times.
Some of the emails emphasized the importance of family — even if that meant “family of investors.”
In a January 2014 email, Dennis Serpone wrote, “Brian,Zippy (the nickname for Dennis’ brother, Richard) and I want to express our sincere appreciation for having you a part of our family of investors. Everyone has become a friend of the Serpone clan.”
Those “friendships” developed out of barbecues, telephone calls and dances, according to the email.
“Ninety-nine percent of the investors were close friends,” Dennis Serpone told the Times. “I would never do anything to make them lose money.”
Dennis Serpone hosts singles events
Another investor, a woman from Rhode Island, learned of the investment opportunities available through LBI after she started attending New England singles dances. Dennis Serpone was often the host of the dances, she said.
“He was a gracious host,” she said.
Her name was put on a mailing list that gave information on when and where future dances would be held.
She received two Chapter 7 bankruptcy notices, one for Headley Grange Investments LLC, and another notice for Levee Breaks Investment Group LLC. Headley Grange Investments is a company Brian Sepone established to build a condominium project, Madoff said.
Dennis Serpone is listed as the host or organizer for a few singles groups found on the internet. He took payments for a New Year’s Eve dance in 2012 held by “Singles With Style.” It’s the same organization he listed as “equity and assets” of LBI in a January 2014 email to investors. “Our equity is your security,” the email read.
A New England Singles Cruises and Vacations group on the Meetup website, organized by Dennis Serpone, offered vacations and cruises for singles “who are able and willing to enjoy several vacations throughout the year with other singles.”
The Singles Millionaire Club, on the Meetup website and also organized by Dennis Serpone, claims 72 members. The group description reads: “Those of us who’ve crossed over the line of having a new (sic) worth over $1M are more comfortable socializing with those of the same ilk. If you own a house or condo and a mature 401/IRA, or other savings or investing programs, you’re probably a millionaire and should be part of our group.”
On his Twitter account, @SinglesWS, he posted a tweet on June 6, 2020, saying a networking social for the Singles Millionaire Club had to be rescheduled because of COVID-19.
Singles events included talk of LBI investments
Dennis Serpone eventually invited the Rhode Island woman to attend an LBI “meet and greet” on the Cape about five years ago. She attended four or five of the “wine, cheese and chats,” as she called them. Investors and potential investors could ask questions of Dennis and Brian Serpone, about the properties they were investing in and any plans for the future.
The Rhode Island woman said she used the “meet and greets” to ask questions of other investors. She asked if the investors were getting paid 10% interest. They assured her they were.
She said most of the investors were in their 50s and 60s, and a lot of the investors she met were women.
The groups were given tours of the various properties, primarily in Yarmouth, to see the work that had been done, according to two of the investors and the Oct. 15 complaint. Some of the homes were diamonds-in-the-rough, fixer-uppers. Some properties were nearing completion. The investors and potential investors could see the workmanship and the quality of the appliances used.
“It was a very real touch, see, feel to it,” she said. “There was never any pressure.”
The Cape Cod educator also attended a few meet-and-greets. Her impression was that there were always more women than men in attendance. However, one man she met at a meet-and-greet is a Boston-area musician who started going to the singles dances and found them enjoyable.
“It opened up my life,” he said.
He said Dennis Serpone had an email list of single men and women throughout New England and would broadcast the dates and locations of the dances through his singles networks.
It was through the dance emails that the musician learned about the promissory notes and the meet-and-greets on the Cape. He would not say how much money he invested in LBI but he did say he used some of the company’s investment returns to buy more LBI promissory notes. He said he is struggling to pay his rent since the monthly LBI investment returns stopped.
A 2014 email from Dennis Serpone congratulated investors, including the musician, on reaching a milestone. The first $10,000 investment rolled over into its third year, with an “11% interest locked in,” the email read.
The email included a list of personal and business assets Dennis Serpone said would “protect” people’s investments. The current estimate of equity in assets was equal to $1,110,000, the email read.
Those assets included Brian Serpone’s $75,000 in liquid cash and two houses, 10 and 14 Rainbow Road in West Yarmouth. According to town and Barnstable County Registry of Deeds records, 10 Rainbow Road is owned by Brian Serpone, 14 Rainbow Road does not list Brian or Richard Serpone as the owner.
Also included as LBI equity was Dennis Serpone’s Singles with Style, with a market value of $75,000, and New England Restaurant Brokers Inc, with $200,000 in equity.But according to the Secretary of State’s Corporation Division, The New England Restaurant Brokers was involuntarily dissolved in 1994.
State Securities Division investigates Levee Breaks Investments
The activities of LBI first came to the attention of the state’s Securities Division in 2019 when an investor filed a complaint, according to Deb O’Malley, spokesperson for Secretary of the Commonwealth William Galvin’s office.
The investigation found that Dennis Serpone and the Levee Breaks Investment Group LLC allegedly violated several Massachusetts General Laws, according to a May 2020 consent order from the Securities Division in the Secretary of the Commonwealth’s office.
On May 26, 2020, Dennis and Brian Serpone submitted an offer of settlement to the state Securities Division. According to the resulting consent order, Levee Breaks and Dennis Serpone admitted to violating the state Uniform Securities Act, including Dennis Serpone not being a registered broker, dealer or agent and LBI employing him to sell unregistered securities.
Under the agreement in the consent order, LBI and Dennis Serpone agreed to make an offer of recession to investors within 45 days and investors would have 30 days to respond, after which LBI had 15 days to issue checks to all eligible noteholders. They also agreed to pay a $35,000 fine, and provide the Securities Division with copies of all their communications with investors for one year. Brian Serpone is identified in the consent order as the founder and manager of LBI.
Dennis and Brian Serpone never followed through in time to meet state deadlines set out in the consent order, O’Malley said.
But LBI did send out letters to noteholders more than a year later, in September saying they would repay the promissory notes. LBI appointed Craig Jalbert, of Foxboro, as manager, replacing Brian Serpone. Under Jalbert’s management, the company would try to sell all properties as soon as possible, the letter said.
The letter reads: “The Company anticipates that it will have sufficient funds to repay the principal and accrued interest of all the Notes in full.” But it did float the possibility of paying investors pro-rata if the company lacked sufficient funds to repay the noteholders.
This caught the Cape educator by surprise, especially since she didn’t get a copy of the letter. She heard about it from another investor.
A second letter to noteholders gave an update on the liquidation status of the company. Specific properties were listed with their estimated sales prices. The company owed approximately $2,890,000 in mortgages, hoped to bring in $4,701,000 from the sales, and would have about $1,811,000 to distribute to investors, the letter said. But there were other fees and costs that might lessen the estimates, the letter warned.
Samantha Stewart, with Compass Real Estate, was retained as the broker for all company properties. The letter to noteholders called her “an unrelated third party to broker the liquidation.”
But Stewart was a manager for Team Serpone/Stewart LLC, a real estate and development company that was organized in 2018 and involuntarily dissolved in June 2021, according to the Secretary of the Commonwealth’s Corporations Division website. Stewart and Brian Serpone were both listed as managers for the company.
LBI attorney Thomas Dwyer said Stewart left the company and asked to have her name removed as manager from the LLC, and from the Team Serpone listing in the Cape Cod and Islands Multiple Listing Service in 2019.
“She’d get commissions on the sales of the property but she has no economic interest with Levee Breaks and hasn’t since 2019,” Dwyer said about Stewart’s role.
The second letter to noteholders warned that because there were lawsuits with attachments to LBI properties, the liquidation was in limbo.
In the meantime, Dennis Serpone and LBI repeatedly missed deadlines set out in the May 2020 consent order.
On Oct. 15, the Securities Division filed an administrative complaint against Dennis Serpone and LBI for alleged continued violations of Massachusetts general law. Those alleged violations included offering to sell unregistered securities while barred from transacting business in the state, employing an unregistered agent, and making false and misleading statements to the Enforcement Section during its investigation.
Dennis Serpone disputes the state’s claim.
“I’m contesting that,” he said. “It’s not true. I never solicited investors.”
He said he couldn’t explain more because he was under a gag order.
On Oct. 22, just a week later, LBI filed for Chapter 7 bankruptcy. The U.S. Trustees Office appointed Madoff as trustee for LBI and Headley Grange LLC. Madoff said that some investor money had been invested in Headley Grange LLC for the condominium project.
Madoff said his ultimate goal is to administer the case by looking into whether there are any other assets that can be garnered, any claims against anybody, or any transfers wrongfully made by either of the debtors.
The Cape educator said she asked Dennis and Brian Serpone if any investors’ money had been used to launch the Music Room, an upscale music venue in West Yarmouth of which Brian Serpone is listed as the principal owner on the Music Room website. Dennis Serpone frequently posts on social media about the national and international musicians slated to perform there.
The Serpones said that COVID-19 had impacted everything from labor shortages to supply chain issues to delays getting town inspections completed, two investors told the Times.
Dennis Serpone sent an email to investors at one point saying LBI couldn’t pay 10% anymore, that the interest would drop to 6%, one of the investors said. The educator asked if LBI was going to change the terms, shouldn’t it issue new promissory notes?
“Dennis poo-pooed it,” she said. “That should have been a red flag.”
Madoff’s job will be to liquidate the properties, gather the money, review the claims and distribute the money, he said.
“It will probably take a long time,” Madoff said.
Investors are worried they won’t get their money back. The first of what may be several telephonic meetings for creditors is scheduled for Dec. 1.
The Boston musician is worried about not getting his money back.
“I was in a retirement situation where I could actually sleep and be safe,” he said. “Right now I’m not safe at all.”
“How much I lose will depend,” the Rhode Island woman said. “I do not have high hopes. I would be excited if I see half.”
Contact Denise Coffey at firstname.lastname@example.org. Follow her on Twitter: @DeniseCoffeyCCT.