02:48 PM PDT on Thursday, May 26, 2005

Associated Press

BEND, Ore. -- A Bend-based company that claims customers can rack up double-digit returns with little or no investment risk is facing an investigation by state regulators.

About 200 investors have already put $17 million into three funds organized by Pac Equities Inc., which has offices in Bend and Portland.

The company says it is operating within the law by selling interests in mortgage-like loans on individual properties, along with shares in limited partnerships of properties backed by those same loans, called deeds of trust.

But regulators at the Oregon Division of Finance and Corporate Securities said they suspect Pac Equities of advertising and selling unregistered securities.

Under state law, companies must file detailed financial and management reports with regulators so consumers can easily figure out an investment's risks and returns.

Michelle Teed, the securities division's chief of enforcement, said one investor complained in 2003 that Pac Equities should disclose more information and register as a security.

"We've been looking at that. We have an open file," Teed said.

Michael Rich, co-owner of Pac Equities with his wife, Phyllis, said his companies are operating legally and that the investments don't have to be registered. Rich told The Oregonian that he expects to meet with state regulators early next month in Salem.

"The Securities Act allows for certain exemptions, which we follow quite closely," Rich said.

The company says it is exempt under Regulation D of the federal Securities Act of 1933 because it offers its investments primarily to "accredited" investors. Accredited investors are wealthy and/or sophisticated investors who are assumed not to need regulators' protection.

But the law also allows as many as 35 "unaccredited" investors who have much less net worth and income to participate, said Brian McCarry, Pac Equities investor relations chief.

Investments last from 12 to 24 months, McCarry said, and at the end of the term can be renewed or withdrawn. But the investment documents also state that withdrawals from the fund are subject to several conditions and approval of the general partners, the Riches.