California securities regulators are investigating an Atlanta company that has raised millions of dollars through a national advertising campaign promising fat returns investing in foreclosed properties, according to a person familiar with the matter.

The state is examining Pinnacle Development Partners LLC, whose ads tell investors they will receive a 25 percent return on their investments in 60 days. Capitalizing on investors' thirst to strike it rich in a waning real-estate market, Pinnacle says it refurbishes foreclosed properties and then sells them at a hefty profit. However, real-estate records show the only buyers of the properties are located at Pinnacle's address. A person familiar with Pinnacle said those buyers are related to the company.

California officials are trying to determine whether Pinnacle is generating profits from buying and selling real estate, or whether it is paying returns using other investors' money, which would make it a Ponzi scheme, according to one person familiar with California's investigation. In a Ponzi scheme, earlier investors are paid with money from newer investors, until the supply of new investors runs out.

Robert Hendree, a Pinnacle official, denied impropriety. "We're doing perfectly fine, legitimate business here," he said. Through an assistant, Pinnacle's founder and an owner, Gene A. O'Neal, declined an interview.

California regulators became involved because some investors are from that state. The state's securities regulator, the California Department of Corporations, believes Pinnacle has attracted tens of millions of dollars. Pinnacle's ads and marketing materials say the company has done more than $56 million in business, and aims for $80 million this year.

In interviews, customers said they consistently received promised payments from Pinnacle and, when they asked, were also able to withdraw their initial investments. Still, some investors say they don't understand how Pinnacle is able to pay such high returns. "We don't see the back end. Is he selling the properties?" asked Gerry Reif, an investor in Denver. Mr. Reif says he participated because the offer was too good to pass up.

The company has discouraged investors from checking out its business practices. In a recent letter, a lawyer for Pinnacle, Christopher M. Kunkel, told investors that if they check with anyone other than an approved list of partners, they risk "dismissal from the investment group and a return of only your initial capital contribution." Mr. Kunkel declined to discuss the letter and said that, on Tuesday, he stopped representing Pinnacle.

Since incorporating in 2003, Pinnacle bought 15 properties for $9 million in Georgia, according to AFX Corp., which collects and analyzes real-estate records. In that period, AFX found no sales to third parties except to entities listing Pinnacle's address.

Barry Minkow, a private investigator who runs Fraud Discovery Institute, a for-profit corporation in San Diego, says the apparent lack of sales raises "red flags" about financial wrongdoing. Mr. Minkow started investigating Pinnacle after an investor contacted his office. He says that the Federal Bureau of Investigation, at his urging, is looking into the matter.

The FBI declined comment. Mr. Minkow also sent a report to the Securities and Exchange Commission, which declined comment.

Mr. Minkow served time in the 1980s for financial fraud, and subsequently founded an investigative service focused on financial services. The FBI commended him in October 2005 for helping to "disrupt and dismantle" financial schemes worth millions of dollars.

Pinnacle's growing business comes as the real-estate boom appears to be faltering. Many investors have been trying to snap up bargains by buying foreclosed real estate from buyers who took out risky loans but now can't make payments, or from banks left holding the properties.

Pinnacle's ads, promising 25 percent returns, have run in major publications, including this newspaper and Barron's, both published by Dow Jones & Co. In April, Newsweek began running a full-page ad for Pinnacle. "Stocks still low?" begins the ad in Newsweek's current issue. "Invest now in Atlanta's booming real estate market." A Pinnacle newsletter distributed to current and potential investors says the company is "anticipating the addition of many new investors" as a result of the Newsweek ad.

A spokeswoman for Washington Post Co.'s Newsweek said the magazine had received an official inquiry about Pinnacle earlier this week, "and made the decision not to run any more of the ads until the investigation is complete."

Other than confirming that Pinnacle was an advertiser, Robert Christie, a Dow Jones spokesman, declined to comment.

In Pinnacle offering materials, the company says it performs "minor work" on foreclosed properties purchased from banks and turns them around for a profit. "After closing," the documents say, "the investor will receive their 25 percent return." To attract money, Pinnacle offers a "$500 referral bonus" to current investors who successfully refer new ones to the company.

In documents sent to earlier investors, Pinnacle promised payment in 30 days. That "closing period" has grown to 45 days and then 60. Keith Ellis, a postal worker in Washington who invested $5,000, and other investors said the company told them that future closing periods will be as long as six months.

Charife Jefferson, a Pinnacle spokeswoman, said the closing periods have grown longer because of the firm's rapid growth. "We get an influx of phone calls everyday from potential partners who want to partner with us," she said. "It gets really, really busy."

Generally speaking, companies that broadly solicit money from investors must register with the Securities and Exchange Commission and state regulators to offer securities. Pinnacle isn't registered to offer securities nationally or in Georgia, according to an SEC database and a Georgia regulatory official.

A person familiar with Pinnacle said the company has structured the real-estate deals as general partnerships that buy the properties. Securities lawyers say that general partnerships like these, in certain cases, wouldn't have to register with regulatory officials. Ms. Jefferson said the company has 1,900 partners. In its materials, the company says the minimum investment is $5,000.

In documents provided to potential investors, Pinnacle offered one property -- 8 Clifton St., an apartment complex in eastern Atlanta -- as an example of a successful investment. According to public records, Pinnacle's owner, Mr. O'Neal, purchased the property in December 2005 for $300,000. Three months later, he transferred ownership of the property to Pinnacle with no money listed as changing hands. That same day, Pinnacle sold the property for $389,000, turning an apparent profit of 30 percent.

The buyer, 8 Clifton Street Development Partners, lists the same address as Pinnacle in records on file in DeKalb County, Ga. A personal familiar with Pinnacle said the new buyer was a Pinnacle partnership, as was a subsequent buyer, Edgewood Development Partners, which also lists the company's address.

In another instance, Pinnacle bought a Atlanta property at Adeline Avenue, N.W., in March for $950,000, according to real-estate records. Two and half weeks later, Pinnacle transferred the property to a number of entities that share Pinnacle's address. In a Fulton County, Ga., tax document, the company lists the property's market value at $4.75 million.