FRISCO, Texas (CBSDFW.COM) - Phillip Michael Carter of Frisco was arrested Tuesday, November 13 on state fraud charges.
He's accused of raising $17.5 million from nearly 100 Texas investors, many of them elderly, for real estate development projects in North Texas, announced the Texas State Securities Board in a news release Wednesday afternoon.
Phillip Carter and Richard Gregory Tilford of Arlington were indicted November 6 in Collin County on charges stemming from their sales of fraudulent real estate investments, primarily in the form of promissory notes, the State Securities Board said.
Tilford raised $6 million from investors.
Carter is the principal of Texas Cash Cow Investments Inc. and North Forty Development LLC. Carter and Tilford told investors their money would be used to develop commercial and residential properties.
Instead, Phillip Carter allegedly used investor funds for unrelated purposes, including paying personal expenses and satisfying a personal IRS tax lien.
The indictment alleges Carter had difficulty funding his projects. According to the indictment, in December 2016, Carter wrote a $6 million check to pay for materials and labor on several projects, but the check was returned due to insufficient funds.
In October, he borrowed $32 million from a Seattle-based private equity firm to fund ongoing construction costs for two properties. The lender holds the first lien, meaning investors are at risk of not receiving payments from the properties.
According to the indictment, Carter failed to disclose to investors that in February 2016 one of his sales agents, Bobby Eugene Guess, was served with a target letter from the U.S. Attorney's Office for the Eastern District of Texas. The letter informed Guess he was under investigation for mail fraud, money laundering, and securities fraud.
Nor did Carter tell investors that he received a similar federal target letter in May 2016.
Guess, who sold millions of dollars of promissory notes, ran into deeper trouble in August 2016. A search warrant was executed at the premises of his company, Texas First Financial, based on evidence of criminal activity. Tilford also worked at Texas First Financial.
Also in August 2016, the Texas Securities Commissioner entered an Emergency Cease and Desist Order against Guess and Texas First Financial, ordering them to halt the illegal sales of the North Forty investment program.
None of the regulatory and criminal actions involving Guess were disclosed to investors. In July 2018 Guess was sentenced to 12 years in state prison after pleading guilty to fraud in the sale of investments through Texas First Financial.
The indictments allege that Phillip Carter and Tilford raised millions of dollars after the target letters, which they did not disclose to investors, were sent to Phillip Carter and Guess.
Carter's misrepresentations extended to his personal background, according to the indictment. He falsely claimed a chemical engineering degree from the University of Virginia and falsely told investors he had worked as a project engineer for Texas Instruments.
Carter also claimed a relationship with "Rich Dad, Poor Dad" author Robert Kiyosaki. He falsely told investors that he had worked for Kiyosaki and traveled with him.
Tilford was a convicted felon even before selling the real estate development notes – a fact he concealed from investors. In the U.S. District Court for the Northern District of Texas in 2012, he pleaded guilty to failing to file a tax return and was sentenced to one year in prison.
Carter's wife, Shelley Noel Carter, was charged with money laundering and misapplying investor funds.
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