Marcus Larson / News-Register##The Falls Event Center McMinnville on the Evergreen Aviation Museum campus.
Marcus Larson / News-Register##The Falls Event Center McMinnville on the Evergreen Aviation Museum campus.
By Nicole Montesano • Staff Writer • 

SEC files complaint against Falls Event Center

The Securities and Exchange Commission has filed a complaint against the Falls Event Center and founder Steve Down, accusing Down of securities fraud, for allegedly misleading investors.

The complaint was part of an enforcement package long-negotiated between the SEC and TFEC, including a “consent order” in which TFEC and Down do not admit any wrongdoing.

In that agreement, Down agreed to pay $150,000, and to stop taking certain alleged actions without admitting or denying having committed them. He also agreed not to seek insurance payments or tax credits to cover the cost of the fine.

However, also on Friday, TFEC blasted the SEC for filing an accusation of fraud when the company consented only to an admission of negligence. It issued a statement saying it would withdraw its agreement to the negotiated consent order because of the language used in the SEC complaint document.

Since a judge ruled the case was closed on Friday, it was not clear what effect the attempt to withdraw would have. As of Monday afternoon, the judge had not issued any new orders, and the SEC had not filed any additional court documents.

In an unrelated case, the lawsuit filed in April by the Evergreen Aviation and Space Museum against The Falls Event Center Evergreen Aviation and Space Museum remains open. The suit was filed in Yamhill County Circuit Court after TFEC failed to maintain payments to the museum it owed out of revenue from the waterpark.

However, museum Interim Director John Rasmussen said the center has now paid the $38,000 it owed in back payments, and made its most recent payment ahead of schedule. Rasmussen said they are in final negotiations and expects to be able to close the case soon.

He expressed some frustration at not being warned by the Falls Event Center that the SEC action was imminent, but said he isn’t unduly worried by it.

“It’s not devastating,” Rasmussen said, noting the SEC was imposing a modest fine.

Further, he said, “it’s their issue, not ours.”

The worst eventuality for the museum, Rasmussen said, in the event that the Falls Event Center doesn’t survive its troubles, is having to face yet another bankruptcy sale and another new landlord. But that doesn’t seem likely, he said.

“It’s $150,000. If the decimal point was over one, and it was $1.5 million, I’d be worried,” he said.

“We want them to succeed,” he added, and said coordination of Falls Event Center events at the museum continue smoothly. He said the museum is more focused on the upcoming busy season than the legal challenges surrounding its landlord.

The SEC complaint alleges Down has not been as financially successful as he claims.

It says Down attracted new investors from 2011 through 2017 by telling them his event centers were highly profitable, when, in fact, they were not, and often, were actually losing money.

The Falls Event Center owns about half the land and buildings occupied by the Evergreen Aviation and Space Museum, purchased in 2016, in a bankruptcy sale. The museum itself is an independent nonprofit, with its own board of directors.

“The Falls own accounting records indicate that, from inception through September 2017, the event centers have never been profitable on the basis of generally accepted accounting principles,” the SEC lawsuit states.

The lawsuit was filed on Thursday, May 10, in federal court in Utah. On Friday, May 11, federal judge Jill N. Parrish signed an order closing the case, based on an agreement that Down signed with the SEC last December.

In the press release, Down said, “We never consented to such allegations listed in the complaint and look forward to defending each and every allegation before a judge. We are outraged by the ‘bait and switch’ committed by the SEC.”

The press release also quotes from a letter it says Down’s legal firm delivered to the SEC on Friday.

It states “The complaint is not consistent with your representations to us during our negotiations for the consent decree and is therefore unacceptable to our client. Your refusal to allow us to see a draft of the complaint before Mr. Down agreed to the consent decree suggests to us that you knew Mr. Down would never have agreed to settle this matter had you disclosed what you intended to put in the complaint. We agreed to settle solely on allegations of negligence, whereas you accuse the defendants of ‘fraud’ throughout the complaint. The complaint is literally a ‘death knell’ for the events center, and Steve Down’s efforts to raise money for businesses, which we assume you know.”

It said the wording of the complaint also puts the law firm in the position of being a witness, thus disqualifying it from being able to represent Down.

“Once Mr. Down finds new counsel, we assume he will decide how to proceed from here,” it states.

The press release also quoted Down stating, “The Falls will continue to conduct business as usual. We fully intend to preserve our 14 event centers and the hundreds of employees who serve their communities with great venues for family, community and corporate events. This is in no way a ‘death knell’ to our company despite the recklessness and false allegations by the SEC.”

The SEC lawsuit states Down financed the purchase and construction of event centers with loans from private investors, which it obtained “because it was not able to obtain traditional bank financing at lower interest rates.”

It said, despite repeated representations to investors that the event centers were profitable in 2016, “the company’s QuickBooks reflects that all centers had net losses.”

Under a “modified accrual basis” the company was using instead of the GAAP basis, it states, “only two out of the eight centers were profitable.”

Similar misrepresentations occurred in 2017, the lawsuit states, despite warnings to Down from his executive team “that his event center model was unsustainable because of the huge amount of mortgage debt on the event centers and because of the tens of millions of dollars of Note principal and accrued interest.”

Rasmussen said the museum is focused on the upcoming busy season

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