Investor Warning – Experience with Stuart Fox / Fox Financial (Orem, UT)

[Sandeep Kumar]

I am sharing my direct experience to connect with others who may have invested with Stuart Fox / Fox Financials LLC (Orem, UT).

In 2023, I executed two promissory notes funded by wire transfer. Since then:

• Obligations remain largely unpaid.

• Payments were sporadic and insufficient to cure default.

• Required financial documentation was not provided.

• Repayment explanations changed repeatedly over time.

Formal escalation has occurred.

I have since learned there are multiple other individuals reporting similar patterns.

If you have invested with Stuart Fox or related entities including Fox Financials LLC, Midwest Cap LLC, Penn Buyers LLC, Pixel Marketing LLC, BizLeads, or similar, you may wish to connect with other impacted individuals.

If you have had a similar experience and would like to connect or compare notes, please reach out.

[Barry Minkow]

Special Agent (Redacted)

HIS/DHS Financial Crimes

Dear Special Agents (Redacted);

The enclosed information arose serendipitously during the research into the Reg D multifamily real estate sector, which thus far includes completed reports on, Cardone Capital, Bam Capital , Gray Capital, LLC, Viking Capital, QC Capital, and Vonfinch Capital. The reasons for this report? Fox Financial, LLC, by their own admission, is a hybrid between a hard money lender guaranteeing investors 18% annual returns and a "multifamily real estate company." According to their website, Fox Financial, LLC is a:

“real estate investment company - we're a team of professionals who are passionate about helping you achieve your financial goals. Whether you're a seasoned investor or new to the game, we've got the knowledge, expertise, and dedication to make sure your money works for you,” ( Link ).

As it relates specifically to Fox Financial LLC's multifamily presence, an important, clarifying social media post states that:

“At Fox Financial, we specialize in multifamily investing, bringing you opportunities to enjoy significant cash flow and tax advantages,” ( Link )

Given the use of proceeds for the “loan notes” to invest in two smaller apartment buildings, this case should be categorized as a multifamily Reg D apparent financial fraud.

Corporate filings from the state of Utah reveal that Fox Financial, LLC began in July, 2020 (articles of incorporation included as an addendum) and the company has an address on their Facebook page in Orem, Utah, ( Link ). The company website explains their entrance into the lending business by stating:

“In addition to our focus on real estate investment, we also operate a mortgage company and a hard money lending company, giving us a comprehensive understanding of the real estate market,” - ( Link )

Approach

There are rare instances in financial investment fraud cases where the evidence supports the presence of “hard fraud”, enabling a “fast-track” approach to presenting law enforcement with the necessary evidence. This appears to be one of those instances. Our background check on Mr. Fox reveals his involvement with numerous corporations and companies, including Fox Capital ( Link ), “Connected Investors” ( Link ), and Fox Management Company ( Link ). These were not the focus of this report due to sufficient evidence of blatant fraudulent 18% "guaranteed" returns promised through the unregistered Fox Financial, LLC offering to fund two apartment buildings.

This report aims to present everything law enforcement needs to determine the high likelihood of financial crime in progress. We obtained primary source documentation, including websites, emails, legally taped calls with President Stuart Fox, actual loan notes guaranteeing 18% annual returns, searches on the Utah Division of Real Estate and the Utah Division of Professional Licensing, a deep background search on Mr. Stuart Fox and Fox Financial, LLC (included as addendums), social media posts, YouTube videos, regulatory filings, and public records.

Several Red Flags for Fraud at Fox Financial, LLC

Red Flag One, Irrational Ratios Compared to Industry Standards:

Fox Financial, LLC's most recent pitch qualifies them as a "mini" Reg D multifamily real estate offering. This classification is due to the "use of proceeds" in the loan note to purchase two apartment buildings, a 22-unit project in Illinois and a 9-unit residential apartment building in Ohio. The guaranteed 18% annual interest payment to investors makes Fox Financial LLC's cost of capital unsustainable and inconsistent with the industry average. Despite being smaller than Cardone Capital, Mr. Fox is a multifamily promoter without the Reg D exemption filing.

The research of Craig McCann and Joshua Mallet is relevant in establishing an objective, accepted gross profit and net profit margin for the industry. Their study comparing private REITS versus public REITS ( Link ), conclusively demonstrated that public REITS outperform private REITS by at least 8% annually. When investing in an equity REIT, you invest in a real estate company that owns and operates a portfolio of properties, paying investors dividend income. Although the Mallet-McCann study included various real estate types, the conclusions are still applicable to the multifamily model for comparison purposes.

Private Reg D real estate companies that offer 18% returns, must compete with other promoters offering similarly untenable returns and deal with inflation and escalating borrowing costs. For a private Reg D multifamily company to guarantee returns not seen or sustained over long periods of time in the public REIT market clearly demonstrates that Fox Financial, LLC is offering an irrational return unsupported by industry standard understood gross profit margin and annual net return to investors. On page two of the Mallet-McCann report, the findings are summarized as follows:

Public REITS dominate due to better capitalization, access to the public markets, accountable senior management, independent proof of profitability, transparent reporting requirements, and the ability to purchase properties with better terms. Arguing that Mr. Fox can somehow generate returns that public REITS cannot achieve defies logic. Given the current real estate market conditions, including foreclosures and halted distributions by firms like Ashcroft Capital which has been covered by the WSJ—( Link ), Fox Financials’ guaranteed returns seem implausible. Stuart Fox’s claim of achieving 18% guaranteed returns is unrealistic, especially without independent proof of profitability or audited financials.

Fox Financial, LLC began in 2020, has had plenty of time to confirm guaranteed returns to investors via CPA-audited financial statements. The only way to differentiate between truthful and false promised returns is through an independent auditor. If a promoter cannot generate enough revenue to pay investors 18% annually and knew this at the time of funding, it constitutes a material misrepresentation. Meaning, projections are fine, but guarantees are fraud if the promoter knew they cannot be achieved at the time of the acceptance of the funds. Independent proof of profitability crucial, yet often absent in Reg D multifamily real estate. This strategy is common among fraudulent promoters, as highlighted in the Bam Capital report.

Sadly, the only proof of profitability provided by Mr. Fox is the testimony of satisfied investors who have received their funds. Perpetrators rely on these investors to promote their offerings without independent verification. The absence of real business generating the promised returns necessitates timely payments to maintain the illusion of profitability. This strategy is common among fraudulent promoters, including Fox Financial, LLC.

Finally, and the hope of the perpetrator, is that the family and friends, when referred to invest, perform their due diligence with their hearts (“my brother Jimmy just made a killing in this deal, he got paid on time all the time, must be legit, I’m all in”), and not with their heads (“can you please provide me with independently prepared financial statements that corroborate the returns you are offering?”). If the latter, from the head approach is used and not the heart approach there would be no trillion-dollar multifamily Reg D fraud to worry about.

Red Flag Two, Security of Investment Misrepresented:

The second red flag we identified involves material misrepresentation regarding the security of the investment. In addition to the unsustainable guaranteed returns a short video on the official Fox Financial, LLC website specifically says that investor funds are, "meticulously secured by the property itself,” and also secured by “collateralized by our extensive portfolio of properties nationwide” assuring investors that they are “in first position on the property,” ( Link ). The exact quote is between 28 and 49 seconds. This clear promise that investments are secured by real estate is reiterated on social media, where ads state: “Ready to invest & earn 18% annual interest? First lien position mortgage 👊🏻 - text 801-900-XXXX,” ( Link ).

The claim of “meticulous” security by the property itself is critical as investors rely on these assurances to protect their principal investment. However, what is preached is not practiced. For example, the loan note sent for the proposed $750,000 loan, included in the addendum below, and the email dated May 16, 2024 omit any reference to the promised secured investment. Despite multiple assurances of a secured investment, the loan agreement lacks any mention of collateral.

When pressed about the lack of promised collateral, Mr. Fox responded vaguely, referring to "other properties" owned by Fox Financial, LLC nationwide. However, no property addresses or breakdowns of loan-to-value ratios (LTVs) were provided to determine if these properties had viable equity and legal ownership to secure the $750,000 loan. In summary, the May 16, 2024 loan note, sent directly from Stuart Fox to a potential investor, contains no security (collateral), making Mr. Fox's assurances materially misleading. This also affects Keith Werner's potential $155,000 investment. The clear representation in the video and the material misrepresentation in the loan note leave the investor with no legal recourse despite the promises made to induce investment.

Red Flag Three, Points of Similarity with Known Frauds:

We identified several points of similarity between Fox Financial, LLC and other known fraudulent schemes, such as Par Three Financial, Titanium Capital and most importantly Woodbridge Group of Companies, LLC

In the case of Par Three Financial ( Link ), Melvin Ruth raised $8 million from 120 investors, promising 2% monthly returns for “loan notes”, which turned out to be a Ponzi scheme. The loans were purportedly to provide check cashing companies with working capital. In December 2023, the SEC shut down Titanium Capital in Florida for raising $5.3 million from 160 investors for a “multicurrency investment scheme” that was also a Ponzi scheme. I was involved in uncovering both cases. In the Titanium Capital case, I was given a promissory note by the promoter, Mr. Abdu, guaranteeing an 18% annual return. This exact 18% annual, guaranteed-interest rate is what Mr. Fox currently offers in social media ads and actual loan notes to investors

The most significant loan note fraud in recent years is Woodbridge Group of Companies, LLC. The points of similarity with Fox Financial, LLC are undeniable. According to charging documents, the Woodbridge business model involved soliciting money from investors (Mr. Fox is doing that on social media); and issuing investors promissory notes in exchange. Investors were promised high monthly interest rates, some as high as 6% per month for investments of 100k or more ( Link ) ( Link ).

Woodbridge offered higher interest rates for investors meeting certain investment amounts, and Fox Financial, LLC uses the same strategy. Their 90-second video outlines the following structured returns:

1. 1. Category One Investors: 18% guaranteed returns (fixed), dispursed through a balloon note after 12 months.
2. 2. Category Two Investors: 2% guaranteed annual returns with monthly interest payments over 24 months and a lump sum payout at the term's conclusion.
3. 3. Category Three Investors: For $100,000 or more, equity partnerships are offered, though the video is vague about the specifics of this third category.

The similarities between Fox Financial, LLC and Woodbridge Group of Companies, LLC are clear. Both engage in aggressive solicitation of investors through platforms like Instagram and Facebook, use "loan notes" as the investment vehicle, offer high returns, and have structured returns escalating by investment amount.

Finally, FINRA warned investors in an article titled, “Loan Notes Can be Less Than Promised,” ( Link ), that loan notes are securities. Remember there was no Reg D exemption filed for this investment offering, and such offerings are often promise “guaranteed returns.”

Red Flag 4, Lack of Licensing and Regulatory Compliance:

Another problematic find involves the guaranteed, unusually high returns and loan notes offered by Fox Financial, LLC, which are essentially doomed by design. Almost every state and federal regulatory agency warns investors that any investment offering a "guaranteed return,” especially one with unusually high 18% annual return (especially when T-bills only fetch about 5. 5%) is a huge red flag for fraud, ranking at the top of regulator “warning” lists. Consider the following from the SEC that provides several good examples of past fraud cases that had offered investors guaranteed, untenable returns:

“In one major regulatory crackdown on the fraudulent sales of promissory notes, securities regulators nationwide brought 370 actions against firms that defrauded more than 4,500 investors of $170 million. The sellers of bogus notes promise high, fixed-rate returns ranging as high as 15 to 20 percent coupled with “guaranteed safety.” They market these notes to individual investors, hoping to lure buyers who won’t ask how such a high-yield investment could carry such a low risk,” - ( Link )

The marketing for Fox Financial, LLC like most Reg D multifamily real estate company's and loan note offering entities, defaults to social media (Instagram and Facebook) to peddle their investment opportunities. A sample social media post from Fox Financial, LLC is included as an addendum.

The above quote practically describes Fox Financial, LLC's offering word for word: 18% guaranteed return (within the 15-20% range) and no risk because of collateral explicitly promised by Fox Financial, LLC's official website and later by Stuart Fox personally. However, the language of collateral security is ironically absent from the loan note itself. To induce investment, investors are promised real estate collateral and trust deeds on properties, but these promises are omitted during the actual funding process.

Moreover, the loan note does not include mortgage liens on any past or current property, any mention of security for the investor, or any UCC-1 filings showing the investor as the secured party. The only mention of “collateral” is in an email response from Stuart Fox, accompanied by a double fist emoji.

And Lastly, Fox Financial, LLC has no licensing as a lender or even a mortgage broker, nor have they filed Reg D exemptions with the SEC. Peter Del Greco, a longtime lawyer at the Los Angeles office of the SEC always used to tell me that he would typically not file an action on an investment company if the only issue was an absence of proper registration. However, he was quick to follow up and add that in these instances where there is an absence of proper registration (including a simple, Reg D exemption filing), there is likely the presence of material misrepresentations or more serious securities violations.

Although Mr. Fox is careful to pitch to "accredited" investors only, a thorough search of the SEC website using "Stuart Fox" and "Fox Financial, LLC" showed that no exempt offerings had been filed. Mr. Fox does have a license as an "insurance producer" (license number 481705), and a previous real estate brokers license which expired in 2019 (license number 201207661). This license appears to have been used with a company called Premier Property Group ( Link ) with the latest post in 2014.

An online search with the Utah Division of Professional Licensing and the Utah Division of Real Estate showed that neither Mr. Stuart Fox nor Fox Financial, LLC had a current and active lending license. In Utah and other states, such as California, Arizona, Nevada, Idaho, Oregon, Minnesota, South Dakota, North Dakota, and Vermont, a lending license is required for non-owner-occupied BPL, even if limited to "hard money lending." Despite the October ruling from the 2nd Circuit, which fell short of determining that loan notes are securities, the minimal requirement is a Reg D filing to ensure the audience is limited to accredited investors.

Consequently, Fox Financial LLC's failure to file an exemption for his latest offering is consistent with a "flying under the radar" regulatory approach. To summarize, from the absence of registering an exempt offering with the SEC to the failure to obtain a lending license in Utah, Mr. Fox is an unlicensed broker-dealer selling a loan note opportunity with a guaranteed return, despite neither he nor Fox Financial, LLC being legally allowed to lend money.

Conclusion

Fox Financial, LLC appears to be a financial crime in progress. Offering a guaranteed return in a multifamily Reg D real estate deal (minus the actual registration) aggressively on social media in an industry on the financial ropes with no collateral (preached, not practiced) is ample evidence that the company and Mr. Stuart Fox are dangers to the investment community.

Addendum Emails and Loan Notes, Social Media Post(s)

9 Unit Cash Flow Scenario:

Source: ( Link )