After accusing a Dallas hotel fund manager and his firm of lying about their portfolio to raise $86M from more than 2,000 investors, the Securities and Exchange Commission agreed to drop its investigation for a fine totaling less than 1% of the size of the alleged scheme.

The SEC settled a civil action against Dallas-based Phoenix American Hospitality LLC and its CEO, W.L. “Perch” Nelson, over allegedly misrepresenting two hotel-focused investment funds to mom-and-pop retail investors between March 2022 and July 2024.

If approved by the court, the settlement would require Phoenix American Hospitality to pay a civil penalty of $591K, while Nelson would be prohibited from serving in officer or director positions for the next five years and would have to pay a fine of $118K.

Nelson and Phoenix American each agreed to the settlement without admitting to the allegations in the SEC’s complaint, which was filed in the Northern District of Texas.

Phoenix American and Nelson didn't immediately respond to Bisnow’s requests for comment on the settlement.

During the more than two-year period outlined in the filing, Nelson and Phoenix American Hospitality raised around $56.6M from roughly 1,300 investors in one REIT and about $29.4M from another 750 investors in a second REIT, which launched during the second half of 2023.

Nelson and his firm allegedly claimed that the two REITs had a diversified portfolio of profitable hotel properties that would allow investors to receive regular distributions of up to 12% per year. The SEC filing states one REIT actually only had preferred equity interest in a single hotel until early 2024 and neither fund was profitable.

SEC investigators said the distributions were largely funded through returns of investor capital.

“As part of the deceptive conduct, Nelson directed a consulting firm to create and disseminate similar untrue statements in marketing materials to investors and potential investors,” the SEC wrote in its filing.

Phoenix American allegedly repeated claims that one REIT had as many as 11 hotels as part of the marketing campaign that sought investors through social media, emails and Nelson-hosted live webinars posted on its website and YouTube. Nelson and his company were regularly posting thoughts on the hotel market on X until September.

The SEC filing states Nelson claimed that the first REIT had acquired 11 hotels in a December 2022 webinar and said the purchases had brought in “probably … $120 million worth of assets in this fund thus far.”

Phoenix American lists 11 hotels in Arkansas, Florida, Indiana, Louisiana and North Carolina on its website. Nelson has been the company's president and CEO for close to 20 years and has been in the industry for more than 30 years, according to his LinkedIn profile.

The federal investigation was conducted by the SEC’s Denver Regional Office.