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SEC Charges Investment Adviser with Fraud for Steering Money to His Own Companies

On June 2, 2016, the Securities and Exchange Commission (“SEC”) charged Richard W. Davis Jr. (“Davis”), a North Carolina-based investment adviser, with fraud for failing to disclose conflicts of interest present in the real estate-related investment opportunities he presented to potential and current investors.

The SEC’s Complaint alleged the following causes of action: fraud in connection with the purchase or sale of securities in violation of Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 thereunder; fraud in connection with the sale of unregistered securities in violation of Section 5 of the Securities Act; and the fraud by an investment adviser for conducting business that is fraudulent, deceptive, or manipulative in violation of Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940.

The Complaint alleged that Davis defrauded at least 85 people of approximately $11.5 million by selling “interests in two unregistered pooled investment vehicles named DCG Commercial Fund LLC (“Commercial Fund”) and DCG Real Assets LLC (“Real Assets”)”.  Davis assured Commercial Fund investors that the capital raised would be used to fund short-term, fully secured loans to real estate developers, but failed to disclose that two of the four projects being funded were his own companies.  Davis also failed to disclose that the loans from Commercial Fund to his companies were in default, and failed to reflect the default in the shareholder’s account statements.

The Complaint further alleged that Davis used Real Assets to raise $9.8 million from investors, $7.7 million of which he transferred to his own companies without first notifying investors.  Davis further “falsely reported to investors that their investments were growing in value year-after-year, and falsely claimed that the Real Assets fund held more than $10 million in assets”.  Davis’s claims regarding the value of Real Assets fund were based on his own speculation and not on a concrete evaluation of the funds actual net value.

Without admitting or denying the alleged fraudulent activity, Davis agreed to a settlement, subject to court approval, which barred him from any future sale of pooled investment vehicles and subjected him to potential future disgorgement plus interest and penalty fees.

The attorneys at Lax & Neville LLP have extensive experience in successfully prosecuting claims on behalf of customers who have suffered losses as a result of investment and securities fraud. If you are a victim of fraud, please contact Lax & Neville LLP today at 212-696-1999 to schedule a consultation.