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Securities and Exchange Commission v. Carl Keith Battie, No. 3:17-CV-01113-K (N.D. Tex filed Apr. 28, 2017)
United States v. Carl Keith Battie, No. 3:16-CR-00051-D (N.D. Tex. filed October 24, 2016)
SEC Announces Charges in Fraudulent Real Estate Investment Scheme
The Securities and Exchange Commission announced that on April 28, 2017, it charged Carl Keith Battie with orchestrating a multiyear fraudulent real estate investment scam that victimized at least 70 investors.
According to the SEC’s complaint, filed in federal district court in Dallas, Texas, Battie, 59, a British citizen who resided in Decatur, Georgia until his arrest in January 2015, raised nearly $9 million between 2008 and 2014, through two investment programs tied to single and multi-family real estate. According to the SEC, Battie concealed his identity from investors by using a now-deceased Dallas-based pitchman to market the investments. But, the SEC alleges that Battie controlled the entire scheme behind the scenes, created most of the investment literature and slide presentations the pitchman used, and often spoke with investors by phone using aliases. The SEC alleges that Battie falsely described both investments as “Truly Passive and Guaranteed” and asserted that they would generate returns ranging from 16% to 35% per year. Offering materials further falsely claimed that Battie’s organization had a “team” of professionals operating thousands of properties. Investors in the second program were falsely told that they were buying so-called “mortgage notes,” which were promissory notes purportedly secured by residential real estate, at sharp discounts to the value of the properties securing them, which supposedly locked in “instant profit,” and that all payments on the note were guaranteed “regardless of any default” by the properties’ tenants or mortgagees.
But, as the SEC alleges, almost nothing told to investors was true. There was no “team” with thousands of properties; just Battie and a couple of administrative assistants, and fewer than 150 properties. And these properties bore little resemblance to those described in offering materials and sales pitches. Nearly all were highly distressed, having been acquired by Battie out of foreclosure. A few were superficially refurbished, but most were not improved at all. To provide the purported “instant profit” to mortgage note investors, Battie artificially inflated the apparent market value of the properties by repeatedly selling them back and forth between companies he controlled. To the extent any tenants occupied the properties, they were uniformly high-risk and low revenue, which forced Battie to rely on new investor funds to make Ponzi payments to earlier investors.
In a parallel federal criminal case, Battie has pleaded guilty to one charge of conspiracy to commit wire fraud, and has been sentenced to 10 years in prison and ordered to pay restitution of $11,402,794.47.
The SEC’s action charges Battie with violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act of 1934 and Rule 10b-5 thereunder. Battie has consented to a permanent injunction against future violations of all of these provisions. Battie is liable for disgorgement, plus prejudgment interest, of over $10 million, which is deemed satisfied by the criminal restitution order. The SEC is not imposing a civil penalty due to Battie’s prison sentence.
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