The Securities and Exchange Commission has charged four individuals and their associated entities with allegedly conducting a long-running and complex fraud on investors in the Melrose Resort on Daufuskie Island, South Carolina.
The SEC’s complaint, which was filed in federal court in Salt Lake City, Utah, names defendants J.T Bramlette, Anthony Hartman, Travis Kozlowski, Aaron Wernli, the Pelorus Group, Private Placement Capital Notes II LLC, Stone Mountain Equities LLC, and Entelecus Fund LLC.
Bramlette, the alleged ringleader of the purported fraud, arranged for the purchase of the Melrose Resort out of bankruptcy in 2011 and managed the property through at least 2016. Beginning in January 2014, the other defendants raised more than $10.8 million from at least 60 investors, through the sale of promissory notes for the supposed purpose of funding the Melrose Resort.
According to the complaint, investors were promised returns of up to 24 percent and were encouraged to put their retirement savings in the resort. The resort, which was uninhabitable and suffering significant losses each month, was in foreclosure, with portions put up for auction for unpaid property taxes.
The defendants lost their ownership in the resort when they defaulted on a series of loans, the SEC claims, but continued to raise money without disclosing this to investors.
In addition, the SEC alleges that Bramlette used a substantial amount of investor funds to pay for his lavish lifestyle, including purchases on Rodeo Drive in Los Angeles, and automobiles for friends and family. Some investor money was also used to make Ponzi-like payments to investors.
The SEC is seeking disgorgement of ill-gotten gains, interest, penalties and permanent injunctions.
Wernli, who is cooperating with the SEC’s litigation, has agreed a permanent injunction, including a court order prohibiting him from issuing or selling any security in an unregistered offering, and a $40,000 fine. The settlement is subject to court approval.