The U.S. Securities and Exchange Commission on Thursday charged a Charlotte investment adviser with defrauding investors by secretly moving portions of real estate investments into transactions with companies he owned or operated himself.
The SEC alleged that Richard Wyatt Davis Jr., 39, breached his fiduciary duty and failed to disclose his self-dealing to all of his investors. The agency also alleged that Davis made false or misleading statements to investors, failed to disclose their losses and improperly received at least $1.5 million from bank accounts that contained investor funds when he was owed less than $150,000 in management fees.
The Observer reported in August that the U.S. Secret Service was investigating Davis for possible investment fraud.
“We allege that Davis failed to inform investors about his own companies being the borrowers of the real estate loans funded with their investments,” said Stephen Cohen, associate director of the SEC Enforcement Division, in a statement. “He then doubled down on his deception by falsely telling investors their investments were growing while his companies were not even repaying the loans.”
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The SEC said Davis has agreed to a settlement pending court approval. The agreement requires disgorgement of any ill-gotten gains, plus interest and penalties to be determined by the court.
Without admitting or denying the allegations, Davis also agreed to be barred from any further sale of securities in a pooled investment vehicle as well as from future violations of securities laws.
The agreement resolves only the civil claims against him, and the SEC has made no promises with “regard to any criminal liability,” according to documents signed by Davis in April and filed in federal court in Charlotte Thursday.
“Mr. Davis settled with the SEC, as many people do, without admitting or denying any of the allegations in their complaint, in order to resolve this matter without costly and time-consuming litigation,” Davis’ attorney, David Rudolf, said.
In its civil complaint, the SEC alleged that Davis from January 2008 until at least February 2015 raised at least $11.5 million from about 85 investors through the unregistered sale of securities in two funds: DCG Real Assets and DCG Commercial Fund I.
According to the SEC, Davis told investors in DCG Commercial Fund that their money would be used for short-term, fully secured loans to developers. But the complaint alleges he failed to inform all of the investors that in two of the four projects the developers were companies owned by Davis.
Investors suffered losses because the loans were never paid in full, but he did not disclose this to all of the investors, the SEC said. Davis also failed to tell DCG Real Assets investors that he transferred $7.7 million of the $9.8 million he raised from them to his own entities, according to the SEC.
Davis, according to the SEC, also falsely told investors that their investments were growing over the years, claiming that the Real Assets Fund held more than $10 million. Those claims, however, were based on his own speculative valuations, the SEC said.
On his LinkedIn page, Davis, whose firms included Davis Capital Group and Best FQ, calls himself a “noted entrepreneur, financial intelligence expert, business leader, investor, public speaker, trainer, author and mentor.” In a 2014 video, he warned investors of major global threats, including a coming one-week national “bank holiday” and a tax on account holders’ “total worth.”
In March 2015, the Secret Service’s Charlotte field office sent letters and questionnaires to people who may have made investments with Davis, asking for details about the investments. The Secret Service declined to comment on Thursday.
Staff researcher Maria David contributed