SEC: Advisor put $11.5M from clients into his own ventures
An advisor purporting to serve professional athletes defrauded investors of $11.5 million by steering their funds into his own real estate ventures, according to an SEC complaint.
Richard W. Davis Jr., founder of Davis Financial and Davis Capital Group in Charlotte, N.C., "doubled down on his deception by falsely telling investors their investments were growing while his companies were not even repaying the loans,” Stephen Cohen, associate director of the SEC's enforcement division, said in a statement.
An ominous pulse of music precedes Davis' appearance in a YouTube video in which the unregistered, self-proclaimed planner promises to warn viewers about "the top three threats … to decimate your portfolio."
But the only threat to the 85 investors Davis harmed, according to the commission, was Davis himself.
Davis convinced many of his clients to roll over their IRA accounts into custodial trust accounts. He then moved their money into unregistered real estate funds, without informing them that he owned many of the companies operating the funds. He ran his scheme for at least seven years beginning in 2008 and ending last year.
"Investors suffered losses because the loans made by the funds were never paid in full, yet Davis failed to inform the investors of this," according to the commission's statement. "Even after he declared one loan to be in default, he failed to reappraise the value of the loan and reflect that change in the shareholder’s account statements. Davis similarly failed to inform … investors that he transferred to his own entities at least $7.7 million of the $9.8 million he raised from them. From there the money was spent or transferred to additional entities he owned or controlled until the entire $7.7 million was depleted."
Davis used some client funds to cover his own expenses, the complaint says.
Davis was entitled to a management fee of .125% of assets under management to be assessed and paid quarterly, according to the terms of the investment offering statements. Instead he took 10 times that amount, or $1.5 million versus $150,000.
On his LinkedIn profile, Davis describes himself as "one of the brightest minds in Charlotte" and "a go-to authority and mentor to many ultrawealthy individuals who are actively seeking better methods for protecting and growing their assets, while preserving their legacy."
Davis, who did not immediately respond to a request for an interview, has agreed to a settlement subject to court approval with disgorgement plus interest and penalties to be determined at a later date, according to the commission.