Boulder man ordered to pay $10.4M in restitution for securities fraud

DENVER — John Koral of Boulder, former partner of US Capital Inc., has been barred from the Colorado securities industry and ordered to pay $10.4 million in restitution to investors the company swindled, the state’s Division of Securities announced Wednesday.

The ruling, made by a district court judge, comes just months after Boulder attorney Lee Weinstein, Koral’s business partner, was barred from the state’s securities industry and ordered to pay $1.75 million, a liability he shares with Koral.

US Capital operated as a so-called “hard-money lender” that specialized in making real estate loans to commercial borrowers who were not eligible for traditional loans for real estate purchases. In order to fund these loans, the company would obtain money from individuals and in return issued promissory notes entitling investors to interest. Investors were told the funds would be secured by the properties, and would have priority over any other loans on the properties.

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The investigation conducted by the Division of Securities discovered that a substantial portion of investor funds were used as loans to other companies owned by Koral and Weinstein. The US Capital officers also reassigned real estate meant to secure investor money to instead secure bank loans, giving the banks priority over the investors. In one instance, Koral used the real estate securing the investors’ money for personal use.

When the debts became unmanageable, investors were notified that interest payments would be placed on hold for a time. They received no further information and weren’t notified that funds from the company had been redirected to the partners’ other business enterprises.

Koral and Weinstein operated US Capital from 2006 to 2011. US Capital went bankrupt in late 2010, and in the process individuals holding promissory notes lost more than $10 million.