SEC Acquires Asset Freeze Over 4D Circle
On April 14, 2017, the Securities and Exchange Commission announced charges against two Fort Worth residents and their company, 4D Circle, for defrauding investors in a commercial real estate investment scheme. At the SEC’s request, U.S. District Judge Terry R. Means has entered an asset freeze and appointed a receiver over the company.
The SEC’s complaint, filed on April 13, 2017 in Fort Worth federal court, alleges that, since early 2014, Mantford C. Hawkins and David E. Bell – the CEO and COO, respectively, of 4D Circle LLC – raised at least $9 million from 50 investors in seven states and Canada. The complaint alleges that 4D Circle purported to be “a wealth creation company” focused on acquiring apartment and office buildings, to which it would then apply supposedly proprietary technology and managerial practices to generate “greater profitability [with] less risk for our investors.” The company’s website and written offering materials allegedly elaborated on these claims, asserting for instance that investors could earn returns of 30% within a 9-month time frame; investments were “bonded”; and investor funds were protected through the use of escrow accounts and third-party oversight. The offering materials also allegedly included “case studies” of particular properties the company had acquired, which purported to demonstrate the profitability of its model.
But, according to the SEC’s complaint, these representations and case studies were false. The SEC contends, for instance, that Hawkins and Bell knew that:
- The properties they had acquired were not generating anywhere near sufficient revenue to support the returns promised to investors.
- The “bond” supposedly backing the investments was inadequate to cover the returns promised to investors and, in fact, did not apply to most of the properties 4D Circle had acquired.
- Purported cost savings and earnings reflected in the case studies were unrealistic, since Bell, with Hawkins’ knowledge, frequently understated properties’ operating costs by capitalizing otherwise routine expenses or by ignoring them altogether.
- There was no escrowing or third-party oversight of investor funds; to the contrary, because 4D Circle’s properties typically failed to generate sufficient revenue to cover expenses, Hawkins and Bell regularly shifted funds from one project to other, unrelated projects. And in some cases, they used new investor funds to pay interest owed to earlier investors in a different project.
The SEC’s complaint charges 4D Circle, Bell, and Hawkins with violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In addition to seeking the asset freeze and receivership, the complaint seeks preliminary and permanent injunctive relief, disgorgement of ill-gotten gains with prejudgment interest, and civil penalties.
After receiving subpoenas in the Commission’s underlying investigation and without admitting or denying the SEC’s allegations, 4D Circle consented to the asset freeze, receivership, and a preliminary injunction, while Hawkins and Bell agreed to preliminary injunctions barring them from committing further anti-fraud violations during the litigation.
For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956 or by email at [email protected]. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.
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