- SEC charges come two months after the Texas State Securities Board charged Christian Custom Homes CEO Phillip Carter with fraud
- Agency alleges Carter and two co-conspirators defrauded more than 270 investors
- Christian Custom Homes and several other companies owned by Carter are now under control of new manager
A little more than two months after the state of Texas charged Frisco-based Christian Custom Homes CEO Phillip Michael Carter with several fraud charges, the Security and Exchange Commission announced it too would charge him and two other alleged co-conspirators with fraud.
In November, the Texas State Securities Board announced the indictments of Carter, and his wife, Shelley Noel Carter, on assorted state fraud charges stemming from alleged misuse of investor funds meant to go to real estate development ventures. Carter was also indicted in Collin County Court on charges stemming from the sale of fraudulent promissory notes, along with Richard Gregory Tilford of Arlington, who is alleged to have raised $6 million from investors. Carter’s wife, Shelley, was charged with money laundering and misapplying investor funds.
The state’s indictment against Carter alleges that he raised nearly $17.5 million from nearly 100 investors, primarily elderly Texans, for real estate development projects through Texas Cash Cow Investments Inc. and North Forty Development LLC.
One of Carter’s sales agents, Bobby Eugene Guess — had been served with a target letter from the U.S. Attorney’s Office informing him that he was under investigation for mail fraud, money laundering, and securities fraud, and in July he was sentenced to 12 years in state prison.
Guess, a former wealth manager, also hosted the radio program “Dollars & Sense” on WBAP.
The state charges for Tilford and both Carters remain pending.
The SEC Alleges ‘Multi-Million Dollar Offering Fraud’
The SEC’s announced it was charging Carter, Guess, and Tilford for conducting “multi-million dollar offering fraud.”
The agency alleged that the three raised almost $45 million from more than 270 investors across the country by selling short-term, high-yield promissory notes that were issued by shell companies that the SEC alleged were intentionally created to confuse investors.
“In addition, Carter, Guess, and Tilford made a number of other materially false and misleading statements while soliciting investors,” the complaint alleged. “Although Carter did, in fact, develop some real estate projects, he also misappropriated more than $1.2 million of investor funds to pay off a personal IRS tax lien, make Ponzi payments to some investors, and operate the Double Droptine Ranch, his out-of-state hunting ranch.”
Among the false claims made, according to the Texas State Securities Board, included Carter telling investors he had a chemical engineering degree from the University of Virginia, and that he had been a project engineer for Texas Instruments. He also claimed to have worked with “Rich Dad, Poor Dad” author Robert Kiyosaki.
Carter, Guess, and Tilford are accused of selling investments in Carter’s legitimate companies, which were backed by hard assets from legitimate development projects. Instead, the SEC said, the three were sold securities issued by closely-named entities with no actual assets.
One promissory note, according to the SEC complaint, read:
“Assets are backed by the pooling of properties held primarily in Frisco, McKinney, and Prosper Texas, by North Forty Development LLC. Texas First Financial, LLC provides updates on properties held. Values of said properties are security for this agreement. In the event of default for payment on this agreement, holder is hereby granted authority to file liens) against current properties held.”
Instead, Guess sent investors promissory notes issued by shell companies he created with names very similar to the legitimate companies investors thought they were working with, the SEC said.
Guess created Texas Cash Cow, LLC or Texas Cash Cow Delaware (Carter’s real company was Texas Cash Cow Investments), and North Forty Development, LLC, or North Forty Delaware, which is nearly identical to Carter’s real North-Forty Development — with the exception of a hyphen.
“Consequently, the notes that investors received were not ‘backed by hard assets’ as promised, and Carter and his entities were not obligated — at least by the face of the documents — to repay the notes,” the SEC complaint said. “Regardless, all investor money was sent to Carter and accounts under Carter’s control.”
Carter then, the agency alleged, used funds to pay $1.2 million towards a personal IRS tax lien, to operate his luxury hunting ranch, and make more than $3 million in Ponzi payments to other investors, as well as to fund his lifestyle.
In fact, the SEC complaint has a laundry list of expenses the agency said Carter used investor money to pay for, including $800,000 in cash withdrawals; $500,000 transferred to his personal bank accounts, $124,000 related to a private jet; $39,000 for Dallas Cowboys tickets; $5,000 in political contributions; and a $1 million transfer of funds received from the distressed sale of a North-Forty real estate project to a personal bank account.
‘Carter’s House of Cards Collapsed’
Despite warnings and target letters from the U.S. Attorney’s Office, Carter began issuing promissory notes in August 2016, too. The three also never told investors about the letters.
“Beginning in August 2016, approximately one week after the TSSB issued a cease-and-desist order against Guess and Texas First, Carter began issuing promissory notes under the name North Forty Capital,” the SEC complaint said. “However, North Forty Capital was not a registered corporate entity; it was simply a bank account or a d/b/a for Carter disguised as a company.”
This additional round of notes were also allegedly sold by Guess and Tilford, who continued to tell investors they were backed by hard assets, the complaint continued.
“Phillip Carter and his co-defendants lied about the nature of their investments and enriched themselves at their investors’ expense,” Shamoil T. Shipchandler, Director of the SEC’s Fort Worth Regional Office, said.
“Carter, Guess, and Tilford repeatedly touted investment in the real estate development projects to prospective investors as ‘low risk,’ but never revealed to investors that they actually relied on the success of each link of a long chain of real estate development projects for repayment,” the SEC complaint said. “Because Carter misused investor funds for unrelated purposes, because of undisclosed risks inherent in Carter’s real estate projects, and finally because he was indicted on Texas criminal securities fraud charges on November 6, 2018, Carter’s house of cards collapsed.”
The SEC’s complaint was filed with U.S. District Court for the Northern District of Texas in Dallas, and charges the three with violating the anti-fraud provisions of the Securities Act and Exchange Act, participating in the unregistered offer and sale of securities, and functioning as unlicensed brokers.
The agency is acting for various injunctions, disgorgements, and civil penalities, and asks for an asset freeze, accounting, and document preservation order for Carter and several of the companies he operated. It also requests that four of Carter’s companies (including Christian Custom Homes) be named as relief defendants.
A relief defendant is typically a person or entity that isn’t accused of wrongdoing, but who the prosecution believes benefited from wrongdoing, usually by receiving funds or property.
The SEC said that Carter owes investors more than $45 million, and since his indictment, he has not been able to close on several of his real estate properties — which means the money he needs to continue financing his real estate developments is drying up.
Earlier this month, he transferred control of North Forty, the hunting ranch, Christian Custom Homes, McKinney Executive Suites at Crescent Parc Development Partners, Frisco Wade Crossing Development Partners, and several other entities to a new manager that specializes in restructuring distressed companies.