A few times a year, we read stories about investor scams similar to "Paper Planes," but yours was especially good.
Having spent a number of years as a prosecuting attorney with the Securities & Exchange Commission and having prepared numerous due-diligence reports, I am always astounded at how flamboyance seems to override due diligence. It seems that underwriters confronted with such promoters as William Rubin and Janet Karki would automatically dispatch a staff of personnel to verify all material matters. As you correctly suggest, the most meager inquiries in this case might have revealed "swampland" in the Bahamas and a "ghost" facility in Santa Barbara. A good, independent look at this financing would surely have saved the investors' losses and avoided the legal liability faced by underwriters.