The principals of San Diego, CA-based self-storage operator Equity Based Services (EBS) pled guilty to charges of conspiracy to commit wire fraud on March 16.

Howard Kaplan and his two sons Stephen and Eric admitted to stealing more than $500,000 from investors while operating the business.

Deceptive Practices

At its peak, EBS owned more than 77 facilities in a dozen states. Most operated under the name American Mini Storage. As of May 2010, the company had more than 400 individual investors participating in its private equity funds. Many of the properties have since been foreclosed upon or sold to new operators.

In his plea, Howard Kaplan, 71, admitted to “diverting funds from better-performing properties” in order to maintain the 8 percent return he had promised to his investors, according to the U.S. Attorney’s Office Southern District of California.

Kaplan failed to disclose to investors that certain projects were not generating enough income to cover operational costs and debt service. In some cases Kaplan used funds from successful projects to cover debt payments on facilities that were floundering. Kaplan also admitted to raising excess funds for new projects in order to fund return payments to previous investors.

Promised Returns

 From 2002 until about August 2010, EBS regularly distributed its promised 8 percent return to investors, which prompted investors to invest in subsequent projects as well as attracted new investors.

However, Kaplan was only able to maintain the 8 percent fee because of his deception. Kaplan and his two sons had promised investors that they would not collect their fees unless the 8 percent return was delivered to investors. In his plea, Kaplan also admitted to charging hidden fees to investors.

After learning of their father’s misconduct, Stephen, 51, and Eric, 43, continued to accept funds from investors without disclosing the “true financial status of the properties and misuse of funds.”

The Kaplans are to be sentenced June 19 and face up to 5 years in prison.

Alexander Harris