State seeks to freeze assets of Nebraska investor at center of $44M bank fraud investigation

The Nebraska Department of Banking and Finance has moved to freeze the assets of a group of companies and two investment funds at the center of an investigation into an alleged bank fraud described as potentially one of the biggest in state history.

Late Wednesday, Lancaster County District Judge Ryan Post granted the state's motion for a temporary injunction against Jesse Hill of Hickman, First SOJO Capital Group LLC and other related entities.

And the judge set a hearing next month to consider if it should remain.

Hill hasn't been charged criminally as of Thursday, according to a search of state and federal court cases.

But the Attorney General's Office says the Banking Department launched its investigation into his companies following the Nov. 2 death of Aaron Marshbanks, a 45-year-old Lincoln real estate investor with ties to Hill. The Nebraska Examiner was first to report the case.

Assistant Attorney General Erik Fern said following Marshbanks' death bankers across the state began "reporting that they had been victims of a fraud scheme perpetrated by Marshbanks, Jesse Hill and Hill's organization, First SOJO Capital Group LLC."

The first of more than 20 creditors — banks, savings and loans and credit unions — started filing demands for notice of an application for informal probate of will and statements of claims within two days of his death.

By mid-December, they had topped $45 million.

In the complaint for injunctive relief, Fern alleged between March 11, 2021, and Sept. 23, 2022, Marshbanks and Hill had made fraudulent statements with at least 14 banks, securing over $20 million in loans.

To get the money, Marshbanks provided account statements that he and Hill had falsified showing the purported value of Marshbanks' or a Marshbanks entity's accounts at JT Equity or First SOJO Capital Group LP.

Fern said the JT Equity accounts that they gave banks security interests to in exchange for the loans didn't exist. Nor did First SOJO Capital Group LP. (Though First SOJO Capital Group LCC, did.)

Despite that, Hill signed at least 22 control agreements representing to banks that the accounts were real, under his control and could be given as collateral for a loan, the AG's office alleges.

Fern said as of Dec. 14, 2022, First SOJO's net capital was less than $9,300, well below the $25,000 minimum to be an investment adviser or maintain a surety bond.

"First SOJO does not have sufficient assets to pay its liabilities (and) is insolvent," he said.

Yet, Fern said Hill continued to represent to an investor as recently as Dec. 6 that he would get his investment back plus a 13% return in January.

In the case, he alleges Hill, First SOJO and his other entities committed a number of violations of the Securities Act of Nebraska, including:

* Executing over 20 fraudulent control agreements to secure nonexistent securities accounts, each of which constitutes a separate violation.

* Starting a new private fund in violation of the 2018 agreement with the department.

* Lying to investors concerning the value of their accounts.

* Failing to send quarterly statements to investors.

* And not maintaining a net capital of at least $25,000.

The lawsuit sought to freeze Hill's assets and asked the judge to bar him and his entities from any further violations and to appoint a receiver to protect investor assets.

Fern said this isn't the first time Hill was the subject of a financial investigation.

In 2018, the Securities & Exchange Commission looked into JT Equity Trading, which Hill owned and Marshbanks had invested in, and found that Hill had sold over $4 million in unregistered securities to 47 investors while acting as an unregistered investment adviser.

Hill agreed to pay a fine and not to establish any new pooled investment funds for 90 days after all the funds were returned. The company refunded all its investors their funds plus profits, aside from one who arranged for a separate repayment agreement, according to the lawsuit.

Fern said in May 2019, Hill organized First SOJO and in November 2021 the business was approved as an investment adviser and Hill as an investment advisor representative.

First SOJO was to act as an investment adviser for two private funds: Outlier Fund I and II. And have an outside fund administrator.

But, Fern said, the administrator resigned after the first quarter of 2022 citing concerns about investment strategy after First SOJO began a highly aggressive options trading strategy in January that led to catastrophic losses for the funds, 98% and 94% respectively.

In March, Chronicle Holdings, an entity owned by Marshbanks, transferred $2.2 million into the funds without disclosing it to the department and Outlier I received $1,475,000 from five people.

The department currently is investigating the circumstances behind the apparent investments, which Fern says Hill and First SOJO failed to disclose to the department, along with the transfer, in response to a subpoena served Nov. 18, after Marshbanks' death.

The Banking Department also is investigating why Hill distributed $11 million from his account to Marshbanks and his entities between Dec. 29, 2020, and Nov. 23, 2021.

Fern said they believe that Hill had been pooling money from multiple investors in his personal account and using it to invest in securities, repeating "the exact same conduct" that had led to the fine in 2018.

In a filing in Marshbanks' probate case, attorney Brandon Tomjack, who represents Midstates Bank, alleged: "Decedent — with the assistance of others — perpetrated what could be the state of Nebraska's largest bank fraud ever committed."

Tomjack said Midstates was one of the victims.

He said Marshbanks told the bank that he and/or his entity, Big Bear Capital, owned an investment account holding between $6 million and $7 million and gave documents to support his statements. Midstates loaned Big Bear more than $2 million on the condition that Marshbanks give the bank a security interest in the investment account as collateral.

"In fact, the investment account does not exist, and Midstates likely has no collateral securing its loan to Big Bear," the attorney said.

Tomjack said the best hope for maximizing the value of Marshbanks' estate is "most likely by determining how the claimants' loan funds were used and/or to whom their loan funds were transferred."

It's also possible some or all of the claimants' loan funds may be in another account, he said.

"Every day that passes makes it more difficult for Midstates and the other claimants to trace and/or recover the funds they loaned to decedent's entities," Tomjack wrote in a motion seeking an emergency hearing, which since has been set for Jan. 11.

Late this month, three men who had partnered with Marshbanks to buy and rehabilitate rental properties joined the probate case, seeking payment of $393,609 in equity on 31 properties, including 11 in the New Orleans metro area and 20 in Nebraska.

In addition to the probate case, banks have filed at least four lawsuits in Lincoln and Iowa seeking more than $6 million.

And in a search warrant seeking phone records, Lincoln police described the investigation into Marshbanks' Nov. 2 death.

Officer Patrick Murphy, an investigator with LPD, said they'd been sent to the US Bank parking garage near 13th and M streets after Marshbanks sent a "concerning email" saying he would be found there in an unlocked silver Audi Q5.

They found him dead in his car, which was running with the air conditioner on high and a drape covering the windows.

Murphy said officers found suspected vomit on the back passenger side of the car, a gun under the driver's seat and a bag that contained Marshbanks' wallet, driver's license and a suspected suicide note.

But they didn't find his phone. So police asked a judge for a warrant to obtain his cellphone records.

Murphy said the phone data "may contain phone logs, various messages, and location data which may further the investigation and provide more information such as communications leading up to Marshbanks' death, where Marshbanks obtained the controlled substances that were in his system, and/or who he may have been with prior to his death."

The autopsy showed he had several substances in his blood and urine, including fentanyl and cocaine.

But the cause and manner of his death hadn't yet been determined as of Wednesday, Lancaster County Attorney Pat Condon said.