A trial is scheduled in November for two Treasure Valley men accused of operating a Ponzi scheme and bilking investors.
The state Department of Finance accuses Nathan W. Pyles, owner of Shiloh Management Services of Nampa, of swindling investors out of at least $4.9 million as he posed as a “God-fearing Christian” while seeking to flip and build houses for profit. Roger Button of Boise, helped him by finding investors for Shiloh.
Pyles used money from newer investors to pay older investors and to pay for his personal expenses, the state says.
Both Pyles and Button deny the charges.
Here’s what the state alleges:
Sometime around 2008, when Pyles formed Shiloh Investments Inc., he began flipping houses, buying homes, fixing them up and then reselling them for a profit. Seven years later, he expanded his business by buying bare ground and building new homes.
Pyles offered most of his investors interest of between 14% and 17% per year for their investments. The arrangement worked for several years, as Pyles was able to repay his investors and attract new money, some of which came from prior investors who rolled over their money.
Meanwhile, Pyle overpaid himself, repaid old investors with money from new investors and either did not record the land deeds as promised or filed multiple deeds on the same property. As a result, only the first lien holder had a security interest, while any others had no valid security interest.
Pyles raised at least $28.8 million from at least 55 investors, 37 of whom were from Idaho. Records show that between January 2014 and September 2017, Pyles used at least $386,724 of co-mingled business and personal income on personal spending.
In a credit application from February 2016, Pyles listed his gross income as $250,000. In other documents, he reported income of $10,000 a month.
While Pyles’ projects were profitable, “they were not profitable enough to cover his expenses,” and Shiloh became a money-losing operation.
After payments to investors increased, Pyles turned to commercial lenders for added cash. He borrowed at least $6.8 million from at least 30 commercial lenders. Near the end of the scheme, he was making daily interest payments to some of those lenders.
In 2017, near the end of the scheme, he began offering higher interest rates “as Pyles scrambled to bring in new investors.”
In June 2017, about four months before Pyles and Shiloh were forced into involuntary bankruptcy, a person identified in court documents as “KF” invested $340,000 with Pyles. She said she was promised 20% interest for investing the money for 100 days.
In late 2017, 10 investors, including Button, went to U.S. Bankruptcy Court in Boise with a petition to force Pyles and Shiloh Management Services into involuntary bankruptcy.
Pyles was later arrested and charged with four counts of writing bad checks on a business account. He was accused of bouncing checks totaling $28,437 paid to investors.
The criminal charges were later dismissed. In November 2018 the Idaho Finance Department filed its lawsuit.
Button, who accused Pyles of defrauding him out of $650,000 he invested, was named in the suit. The state accuses both men of selling unregistered securities and failing to register as securities agents.
Pyles is also charged with fraud and fraudulent conversion. Button is also charged with materially aiding Pyles.
Button, the state said, received a 2% commission on investors he brought to Pyles. Correspondence between the two men showed Button expected compensation.
In court documents Pyles and Button deny they sold securities. They said investments were secured through a deed of trust for each property.
Pyles and Button asked a judge to dismiss the state’s lawsuit. In an Oct. 2 decision, Ada County District Judge Nancy Baskin turned them down.
Baskin found that if Pyles tied multiple investors to the same property without the lenders being informed, that “causes the form of the transaction to potentially become more like a security and less like a deed of trust.”
She also found that in cases where an investors was to be paid an interest rate on the money borrowed and 50% of the sales proceeds when the property was sold, they could also be considered securities.
“The state alleges this business model eventually developed into a Ponzi scheme over time when Pyles could not pay the investors as promised,” Baskin wrote. “So Pyles allegedly started securing properties with more than one investor’s monies, not recording all the deeds as promised and not informing investors they did not have a first-position security interest in the real property.”
Because of Pyles’ poor record-keeping, the Idaho Finance Department said it could not determined the exact amount of investor losses. The agency says a conservative estimate is that he owes investors $4.9 million.
The case is scheduled to go to trial Nov. 10 and is expected to last three weeks.
The state is seeking fines of at least $100,000 each against each man and a restitution order of at least $4.9 million. It is also seeking an order barring both Pyles and Button from selling or offering securities in Idaho and from working in any financial services industry or business in the state.