The Securities and Exchange Commission has filed fraud charges against Texas-based real estate developed Philip Carter, as well as two other people and a group of related entities, according to a press release published on January 29, 2019.
Per the SEC’s complaint, Carter and two other individuals—Bobby Guess and Richard Tilford—engaged in fundraising activities that resulted in a total of nearly $45 million raised from more than 270 investors across the United States. They did so by selling these investors “short-term, high-yield promissory notes issued by a number of shell companies intentionally named to confuse investors.” The SEC alleges that the three individuals purported to offer investments in legitimate real estate development companies controlled by Carter, which they represented as supported by hard assets from real estate projects. However, according to the complaint, the securities they sold were in fact backed by “unrelated, but closely-named, entities that had no assets.” Mr. Carter himself proceeded to misappropriate customer funds, which he used to finance expenses including “$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,” according to the SEC.
The alleged scheme began in 2015, according to the SEC’s complaint, and was initiated by Mr. Carter after he met Mr. Guess. In connection with the alleged scheme, Mr. Guess agreed to help raise funds for Mr. Carter’s companies, Texas Cash Cow and North-Forty. They “ran advertisements on Dallas-area radio stations touting investments with nine percent annual returns, no market risk, and backed by ‘hard assets,'” according to the SEC, and when people called about the ads, Mr. Guess and Mr. Tilford “specifically pitched investments in Carter’s companies.” The three individuals also allegedly distributed brochures and other materials to prospective investors that “included numerous false statements about Carter’s background and professional experience,” for instance that he possessed a chemical engineering degree from UVA and that he had “worked for Texas Instruments’s world-wide construction team,” both of which are untrue statements, according to the SEC.
According to the SEC’s complaint, Bobby Guess pleaded guilty to state securities fraud in July 2018 and was sentenced to 12 years in prison, a sentence he is currently serving. Richard Tilford pleaded guilty to failing to file a tax return in July 2012 and was sentenced to a year in jail; he was also ordered to pay restitution totaling $453,547. Philip Carter was formerly the trustee of the Stillwater Trust, which the complaint says “was the manager of North-Forty and other entities he controlled.” The SEC complaint notes that when he was subpoenaed to testify in its investigation, he invoked the Fifth Amendment. Carter has been charged with securities violations both individually and doing business as North Forty Development Capital Account; the complaint also charges Guess, Tilford, North Forty Development LLC, Texas Cash Cow LLC, and Texas First Financial. The SEC seeks permanent injunctions, conduct-based injunctions, disgorgement, prejudgment interest, and civil penalties in the pending complaint. According to the press release, the SEC is also seeking a court order freezing Mr. Carter’s assets, ordering him to provide an accounting, and issuing him a document preservation order.