The Securities and Exchange Commission announced that it filed charges against Texas resident and real estate developer Phillip Michael Carter, two other individuals, and several related entities for conducting a multi-million dollar offering fraud.
The SEC’s complaint alleges that Carter, along with Bobby Eugene Guess and Richard Tilford, raised almost $45 million from over 270 investors across the United States by selling short-term, high-yield promissory notes issued by a number of shell companies intentionally named to confuse investors. The complaint alleges that Carter, Guess, and Tilford claimed to offer investments in Carter’s legitimate real estate development companies, which were purportedly backed by hard assets from actual real estate development projects. Instead, the complaint alleges, the individual defendants sold securities issued by unrelated, but closely-named, entities that had no assets. Carter then misappropriated investor funds to pay $1.2 million towards a personal IRS tax lien, operate a luxury hunting ranch, fund his lifestyle, and make over $3 million in Ponzi payments to investors.
The SEC’s complaint charges Carter, individually and d/b/a North Forty Development Capital Account, with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.
The complaint also charges Guess, Tilford, North Forty Development LLC, Texas Cash Cow, LLC f/k/a Texas Cash Cow Investments, LLC, and Texas First Financial, LLC, with violating the antifraud provisions of Section 17(a)(2) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5(b) thereunder. The complaint charges all the defendants with violating the registration provisions of Sections 5(a) and 5(c) of the Securities Act. Separately, Guess and Tilford are also charged with violating the broker-dealer registration provisions of Section 15(a) of the Exchange Act. The SEC is seeking relief from the defendants in the form of permanent injunctions and conduct-based injunctions, disgorgement, prejudgment interest, and civil penalties. The SEC is also requesting disgorgement and prejudgment interest from the four relief defendants. The SEC also requested that the Court freeze Carter’s assets, order him to give an accounting, and issue him a document preservation order.
In related criminal proceedings pursued by the Texas State Securities Board, Carter and Tilford were indicted on November 6, 2018, for, among other things, securities fraud, sales of unregistered securities, and sales of securities by an unregistered agent or dealer. Those charges remain pending.
The SEC’s investigation was conducted by Jason A. Braun and Michelle Lama, and supervised by Jim Etri, B. David Fraser, and Eric R. Werner. The litigation is being conducted by Matt Gulde. The SEC acknowledges the assistance and cooperation of the Texas State Securities Board.