The SEC has filed emergency charges against Texas resident and real estate developer Phillip Michael Carter and several individuals and entities for running an alleged Ponzi scheme that raised $45 million from investors since 2015.
Carter, 44, who is also facing criminal charges related to the case, used investor assets to fund a lavish lifestyle, including private jet expenses, $1 million to operate a 1,000-acre hunters’ paradise he named the Double Droptine Ranch, $1.2 million to pay off a personal IRS tax lien and over $3 million in Ponzi payments to investors, according to the SEC.
Carter, along with Bobby Eugene Guess and Richard Tilford, raised almost $45 million from more than 270 investors by selling short-term, high-yield promissory notes issued by a number of shell companies intentionally named to confuse investors, the SEC’s action alleges.
The agency said that defrauded investors may never see a dime of their money.
“Carter and his real estate companies lack sufficient funds to repay either the large amounts due and owing to investors or to pay outstanding construction debts ... and Carter has continued to misuse investor funds and make preferential payments,” the SEC said in its complaint.
The SEC emergency action against Carter and his cohorts is the latest chapter in a two-year history of criminal investigations and proceedings into the Carter-controlled Ponzi scheme in Texas.
Carter and Tilford were indicted on November 6 for, among other things, securities fraud, sales of unregistered securities, and sales of securities by an unregistered agent or dealer in Texas. Those charges remain pending.
Guess is currently serving a 12-year prison sentence after pleading guilty in July 2018 to one count of securities fraud in connection with a similar, unrelated scheme.
The SEC’s emergency order 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. But, instead, investors were sold securities issued by unrelated but closely named entities that had no assets, the SEC said.
Carter initiated this scheme in the summer of 2015 after meeting Guess, who at the time was selling short-term, high-yield promissory notes to raise money for entities unrelated to the SEC’s complaint, according to the SEC.
Guess generally solicited investors while Carter developed the real estate projects, the SEC said. However, Carter also met with investors and closed sales, assuring them that investment was not risky and that if one real estate project encountered delays, then investors would be repaid from other projects he had under development, the SEC said.