SEC sues company accused of 'duping' Texas police group out of $1M
The SEC is suing the developer of the stalled $4.4 million Fort Worth Police Officers Association headquarters for operating a multi-million-dollar fraud scheme
By Max B. Baker
Fort Worth Star-Telegram
FORT WORTH, Texas — The U.S. Securities and Exchange Commission is suing the developer of the stalled $4.4 million Fort Worth Police Officers Association headquarters for operating a multi-million-dollar fraud scheme in seven states and Canada.
In the lawsuit filed by SEC in Fort Worth federal court Thursday the agency contends that since 2014 4D Circle raised at least $9 million from more than 50 investors and also defrauded the POA out of $1 million through its agreement to build a five-story, 30,000-square-foot building in downtown Fort Worth.
U.S. District Judge Terry Means on Thursday froze the assets of the company, also known as Enoetics, and also appointed a receiver to protect the interest of the investors. The lawsuit specifically names Chief Executive Officer Mantford Hawkins and Chief Operating Officer David Bell.
“4D Circle was not the successful, cash rich company that was portrayed to investors. It was, in reality, a failing business that was hemorrhaging cash — and ultimately, a fraud scheme,” the SEC complaint states.
Hawkins and Bell, without admitting or denying the allegations made in the complaint, agreed to a preliminary injunction freezing their assets and to the appointment of the receiver. Hawkins and Bell also agreed to stop selling securities.
Hawkins and Bell could not reached for comment by the Star-Telegram on Friday. Hawkins’ attorney, Kevin Edmundson of Spicewood, also did not immediately return a phone call seeking comment.
The SEC complaint is the latest chapter in the saga of the troubled company, with its most noteworthy project being the proposed construction of a new headquarters at 10th and Collier streets for the POA, which has already filed a civil lawsuit against the company in Tarrant County civil court.
In that lawsuit, the POA said Hawkins and his associates at 4D Circle not only miscalculated the building’s size by 10,000 square feet, but it then took more than $1 million the association had paid it and used the money on other projects. It even alleged that some of the money was used to pay for an associate’s divorce.
In return for their investment, the POA got little more than an empty lot where their former headquarters used to be. It is now surrounded by a chain link fence and the group is renting office space elsewhere.
In the SEC complaint, the agency contends that 4D Circle’s officers offered debt and equity securities and that the company would use the money to acquire and improve multi-family or commercial real estate properties. Typically, 90 percent of the cash was earmarked for buying properties and 10 percent for repairs.
4D Circle does have a number of commercial buildings, many of them on Fort Worth’s near east side, including The Lancaster Apartments at 5200 E. Lancaster Ave., according to Tarrant County court records.
Investors were told that the company only bought stable, cash-flowing properties and that they would make them produce even more revenue through improvements and their management expertise, federal court records show. The cash flow would then be shared with investors in the form of periodic interest payments.
But very early on in the offerings “if not from the very outset,” it became apparent to Hawkins and Bell that “4D Circle’s properties were not generating enough cash to pay the promised investor returns,” court documents state. There wasn’t even enough cash to pay the day-to-day expenses, records show.
Instead of being up-front about 4D Circle’s “failing model,” the company’s leadership paid the promised interest payments with money from new investors. When that didn’t prove enough to keep things afloat, the company took money from wherever it was available and used it where it was needed, records show.
‘Rob Peter to pay Paul’
“This ‘rob Peter to pay Paul’ approach had the effect of prolonging the scheme,” court records state. The POA project was another chapter in that approach, the SEC claims.
The POA signed a “fixed price” contract with 4D Circle in late 2014 with work scheduled to begin in early 2015. Work was to be done in phases, with payment made upon completion of each stage. To get things off the ground, the POA paid 4D Circle $1 million up front.
The new building was to include four floors of office space for the association, including training space and a gym. The street level was supposed to have 3,500 square feet of retail space.
“As it turned out, the defendants diverted significant sums of money into other 4D Circle entities as part of the overall fraud scheme,” court documents state. “The defendants also misappropriated funds — including for the purchase or refinance of a property that had nothing to do with the FWPOA,” court records show.
Chris Lyster, the attorney representing the POA in state civil court, could not be reached for comment Friday. But in an earlier interviewed said the group felt “duped.”
“It darn sure ain’t right. If you give people money to build their project you ought to use their money to build their project,” Lyster said. “The police were duped in this thing.”
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