Bankrupt Daufuskie resort linked to investigation of $20 million-plus ‘Ponzi-like scheme’

A federal agency is investigating the owner of the bankrupt Melrose Resort on Daufuskie Island for possible connections to an alleged “Ponzi-like scheme” that may have cost investors more than $20 million, court documents show.

Last year, U.S. Securities and Exchange Commission investigators in California began seeking financial documents from the resort developer Pelorus Group and its owner J.T. Bramlette in an attempt to locate about $22 million in unaccounted for investment cash.

That inquiry stemmed from a series of earlier investigations into possible federal securities law violations by several investment and wealth management firms with alleged ties to Bramlette and the Pelorus Group, according to court documents filed in October.

In early 2015, SEC officials discovered the San Diego-based firm Total Wealth Management “had misappropriated millions of dollars in investor funds through a series of offerings under variations of the name Altus Funds,” court documents show.

While attempting to locate and recover those funds, investigators learned that tens of millions of dollars were transferred from Total Wealth Management-affiliated companies to a Colorado investment firm called Private Placement Capital Notes II, LLC and its owner Anthony Hartman, according to an SEC court filing.

Hartman is described in court documents as a Bramlette business partner and operating partner in the Daufuskie Island venture.

Hartman’s company, referred to in court documents as PPCN, is alleged to have made interest payments “to the Altus Funds … through a Ponzi-like scheme.”

According to court documents, PPCN received over $24 million from investors who were promised 12.5 percent annual returns.

Those investors — “many of whom are retirees” — have allegedly not seen any returns since 2014, court documents show.

But Bramlette and the Utah-based Pelorus Group may have received much of that investor money, court documents allege.

“According to Hartman, beginning in 2011, most of the PPCN investor money — over $22 million — was transferred to (Bramlette) and the Pelorus Group to invest in a resort located on Daufuskie Island,” the SEC filing alleges.

“The Pelorus Group has not paid PPCN any return on this supposed $22 million investment and, as a result, PPCN has been unable to pay investors anything for at least two years,” according to court documents. “Where that $22 million has gone or how it was spent is unclear.”

Bramlette has allegedly done little to help SEC investigators clear up the whereabouts of that money.

In 2011, The Pelorus Group purchased a large portion of the former Daufuskie Island Resort & Breathe Spa, including a restaurant, beach cottages, an inn, a ferry landing and a golf course.

At the time, Bramlette told the Island Packet and Beaufort Gazette he bought what is now the Melrose Resort for $13 million and vowed to “to revitalize this entire project.”

Six years later, the restaurant is shuttered, the inn and beach cottages vacant, the greens and fairways at the golf course are empty, and the resort has filed for Chapter 11 bankruptcy protection.

Investigators were left scratching their heads as to how — or if — the resort used investor capital to make any improvements.

When asked by SEC officials for documentation regarding how PPCN’s money was used on Daufuskie Island, Hartman “admitted that ‘I don’t have documentation’ because ‘it’s like getting documentation from your spouse that you promise you’ll bring milk home that night,’ ” court documents show.

Last July, SEC investigators served Bramlette and the Pelorus Group with several subpoenas seeking “basic business and financial records … that would provide information on (the firm’s) organization, accounting, investments, and relationship with PPCN and Hartman, and the disposition of the $22 million PPCN sent to Bramlette and the Pelorus Group,” according to court documents.

Officials with the SEC claim in court filings that Pelorus Group records may shed light on “whether investors were provided with false and misleading information about their investment in PPCN and Melrose (Resort),” as well as “which parties may have received ill-gotten gains” from those investors.

In October, investigators alleged in a court filing that the Pelorus Group had “refused to provide most of the requested documents because, in their (the group’s) view, the subpoenaed documents are ‘not relevant’ to the SEC’s investigation.”

The SEC disagreed, writing in the filing that the “the documents are clearly relevant” to their attempts to locate “the unaccounted for $22 million” allegedly transferred by PPCN to the Pelorus Group.

The resort developer and its owner “clearly should know what happened to that money,” the filing said.

A statement that accompanied the SEC’s October court filing said the agency “is continuing its fact-finding investigation and, to date, has not concluded that anyone has violated the federal securities laws.”

In November, attorneys representing Bramlette and the Pelorus Group responded to the SEC’s request for documents.

Bramlette’s “objective is to make up for lost time in responding” to the SEC’s request, and aims to reach a “mutually-agreeable resolution of any outstanding details as quickly as reasonably possible,” the response said.

It is unclear whether Bramlette has been able to satisfy the SEC investigators’ document requests in the months since that response was filed.

Securities and Exchange Commission spokesman Kevin Callahan said in an email Thursday that the agency can’t comment on the case at this time.

As of late Thursday afternoon, neither Pelorus Group representatives, nor attorneys for Bramlette and the company had responded to requests for comment.

Earlier this month, a U.S. District Court judge in California ordered “that a joint status report must be filed by the parties” no later than April 3.

This story was originally published March 16, 2017 at 4:25 PM with the headline "Bankrupt Daufuskie resort linked to investigation of $20 million-plus ‘Ponzi-like scheme’."