Claimed real estate investor, Richard J. Randolph charged with securities fraud
ATLANTA (STL.News) Richard J. Randolph, III, has been arraigned on federal charges of securities fraud. Randolph was charged in an information filed on April 1, 2021.
“Investors expect the companies that they invest in will operate with integrity,” said Acting U.S. Attorney Kurt R. Erskine. “The defendant allegedly went to great lengths to mislead potential clients, convincing some to invest over $1.5 million in the alleged scheme.”
“Creative fraud is still fraud,” said Special Agent in Charge Steve Baisel, U.S. Secret Service Atlanta Field Office. “Fortunately, the combined efforts of law enforcement partners are an effective way to stop bad actors.”
According to Acting U.S. Attorney Erskine, the charges, and other information presented in court: Richard Randolph was the CEO, Chairman of the Board of Directors, and majority shareholder of Randolph Acquisitions, Inc., a company headquartered in Atlanta that publicly filed its financials with the Securities and Exchange Commission. He also controlled Gallagher Management Group and other related entities. In 2017 and 2018, Randolph sold over $1 million in Randolph Acquisition stock to various investors.
In 2017, Randolph began preparing to merge Gallagher Management Group into Randolph Acquisitions and sold Randolph Acquisitions shares to multiple investors. Gallagher Management also engaged an accounting firm to audit its 2016 financial statements. In connection with this audit, Randolph allegedly provided false information regarding Gallagher Management Group’s assets which were then reflected on the balance sheet of the 2016 financial statements:
Randolph falsely claimed that Gallagher Management Group owned two buildings valued at a claimed $10 million combined. In reality, neither Gallagher Management Group, nor Randolph ever owned these properties.
Randolph falsely valued a different property at $10.5 million with no associated liability. In reality, Gallagher Management Group purchased the property in or about September 2016 for $1.1 million with a $1.1 million mortgage loan secured by the property. It was sold in August 2017 for $1.2 million.
Randolph falsely valued yet another property at $4.5 million that was acquired in January 2016 for $425,000 by an entity controlled by Randolph and was transferred to Gallagher Management Group in March 2017. In April 2018, the property was sold at auction for $687,500 after Gallagher Management Group defaulted on a $500,000 loan.
Randolph provided a false bank statement showing a balance of over $2.5 million. The actual balance in this account was $58,198.78.
The audited financials included other misrepresentations such as falsely stating that Gallagher Management Group “has consistently maintained over $50 million dollars in assets, under management, annually.”
Gallagher Management Group also engaged a consultant to prepare a business valuation for the merger which relied upon Gallagher Management Group’s 2016 audited financial statements, alleged additional false property valuation information provided by Randolph, and false projections provided by Randolph. The report valued Gallagher Management Group at $31.3 million on an enterprise value basis and $33.8 million on an equity value basis.
In connection with the proposed merger between Randolph Acquisitions and Gallagher Management Group, Randolph Acquisitions made multiple filings with the Securities and Exchange Commission that attached the alleged false 2016 audited financial statements of Gallagher Management Group. Randolph directed investors to these filings. In addition to these documents, Randolph allegedly falsely claimed that Randolph Acquisitions owned EF Block when it did not. He allegedly falsely claimed that Randolph Acquisitions was close to securing a variety of large public and private contracts in the U.S. Virgin Islands, including hurricane remediation contracts and an agreement to manage the U.S. Virgin Islands public retirement fund, when in fact they never obtained any of those contracts.
These alleged misrepresentations materially increased Randolph Acquisitions’ apparent value and future prospects, when in reality, it was little more than a shell company with limited assets. Randolph allegedly induced 14 victims who relied upon the misrepresentations to invest over $1.5 million in Randolph Acquisitions.
Richard J. Randolph, III, 40, of Atlanta, Georgia, was arraigned before U.S. Magistrate Judge Regina D. Cannon. Members of the public are reminded that the indictment only contains charges. The defendant is presumed innocent of the charges and it will be the government’s burden to prove the defendant’s guilt beyond a reasonable doubt at trial.
This case is being investigated by the U.S. Secret Service, with assistance from the U.S. Securities and Exchange Commission. In a related civil matter, the U.S. Securities and Exchange Commission filed a complaint charging Randolph and he consented to entry of a judgment against him.
Assistant U.S. Attorney Christopher J. Huber, Deputy Chief of the Complex Frauds Section, is prosecuting the case.