Receiver sought for LLCs tied to alleged Ponzi scheme

The U.S. Securities Exchange Commission has asked a federal judge to place hundreds of acres in North Texas into receivership pending the court proceedings over a Dallas developer’s alleged Ponzi scheme.

Last week, the U.S. Attorney for the Northern District of Texas drew up federal charges against Dallas firm JMJ Development for allegedly scamming investors out of $26 million under the guise of North Texas property developments. CEO Tim Barton faces nine felony counts including securities fraud, wire fraud and conspiracy to commit wire fraud, according to a grand jury indictment. Barton, along with homebuilder Stephen Wall and Chinese businessman Michael Fu were separately accused by the SEC of misleading investors into buying securities issued by companies the three controlled, and then allegedly “misappropriat[ing] nearly all investor funds.”

Now, the SEC has requested the appointment of a receiver over some of the entities tied to the scheme, the Dallas Business Journal reports. Receiverships are cases in which a judge appoints a third party to locate and potentially liquidate properties in order to pay a judgment. The motion filed on Monday warned that there could be a “substantial risk to the value of the property interests if a steward is not put in place to protect them.”

“The SEC respectfully requests the Court to appoint a receiver over the Barton-controlled entities to determine the value of the property interests (and any other assets) and to secure, preserve, and potentially monetize that value for the benefit of defrauded investors,” the motion reads.

The nine entities which the SEC are requesting receivership over were all named after Wall, a prominent North Texas homebuilder, who lent his brand to lure investors — Wall 7, Wall 9, Wall 10, Wall 11, Wall 12, Wall 16, Wall 17, Wall 18 and Wall 19. Specific numbers deemed unlucky in Chinese culture were avoided in the investment names, the DBJ says.

Each limited liability company was supposed to purchase a specific parcel of land identified in the loan agreements at a specified price. However, the SEC motion says the representations put forth in these agreements were false — “of the approximately $26.3 million raised, only two Wall Entities (Wall 7 and Wall 9) actually purchased the property described in their agreements for a total purchase price of approximately $2.6 million.”

The motion further claims that the loan agreements inflated the prices for the properties it actually purchased. For instance, Wall 9 had indicated that a 100-acre tract was acquired for $2.9 million when records list the purchase price at $1.01 million.

“At the time of the offerings, the Barton Defendants had already secured, or were in the process of negotiating, purchase prices for the properties that were significantly lower than the prices set forth in the Loan Agreements,” the motion says.

A spokesperson representing Barton and JMJ Development emailed a statement to the DBJ saying that the parties were “committed to vigorously addressing both the SEC and FBI allegations in concert with their counsel Richard Roper of Holland & Knight.”

“The parties’ aim is to reach an expedient resolution to all matters pending,” according to the statement.

— Maddy Sperling