Man touts business empire built of rowhouses bought at sheriff’s sales

When Tylisha Slaughter learned that the West Philadelphia rowhouse she rented was going to be auctioned off in a sheriff’s sale, she sensed opportunity.

Slaughter, now 30, aimed to buy the home near Cobbs Creek Park on the cheap and restore it from the “slumlord”-like conditions she, her boyfriend, and her two young children had been living in.

But on the day of the sale, she said, she found herself up against an out-of-towner with lots of money to spend: Brandon “Dutch” Mendenhall.

“He outbid me,” said Slaughter, whose rent has risen from $700 to $900 since Mendenhall’s RAD Diversified REIT became her new landlord in late 2019, even as she says her complaints to RAD’s property managers about pests and leaky pipes have gone unanswered.

Slaughter’s home is part of a five-state empire of real estate bought through sheriff’s sales and “We Buy Houses” signs that Mendenhall, RAD’s chief executive, has been selling to investors on Facebook, YouTube, and other social media, touting what he portrays as the venture’s market-beating performance.

Mendenhall, who is based in Southern California, has described Philadelphia as the biggest market for RAD, a firm founded in Florida that specializes in buying distressed real estate then renting it out. The company and others that he runs own nearly 100 properties across the city’s low-income neighborhoods, records show. RAD’s real estate holdings nationwide were worth some $24 million as of last fall, the company has reported.

According to one of the 81 ads for RAD running earlier this week on Facebook and its sibling social-media sites, RAD shares surged from $14.23 in January 2021 to $18.52 in January 2022, an increase of 30%.

“Our returns are so good right now, it makes it hard for people to even believe in them,” Mendenhall boasts in another ad. “That’s frustrating.”

But RAD’s official disclosures tell a more doleful story than its online ads.

During the first six months of last year, the most recent period covered in RAD’s latest investors’ circular, filed with the U.S. Securities and Exchange Commission in January, the company’s real estate business lost $1.12 million, although the firm had relatively little debt compared with the stated value of its assets.

The company also disclosed that it may use new investors’ money to pay dividends to existing ones. Experts say it can be risky for an investment fund to operate this way, since it may require ever more participants to be brought on board, rather than making money from its business.

More than 60% of RAD’s operating expenses in 2020, the most recent period for which the company has released audited financial information, consisted of asset-management fees and other payments to a separate company owned by Mendenhall and other RAD executives called RAD Management LLC, according to an analysis of the financial data.Those fees and payments amounted to more than $730,000 that year, RAD said.

“We have limited operating capital, few significant assets and limited revenue from operations,” RAD wrote in the January document, which sought to raise up to about $58 million in new funds, for a total of $75 million of company shares. “If we are unable to continue to raise sufficient capital through this offering, there is a strong likelihood our business will fail and you may lose your entire investment.”

RAD declined to directly answer detailed lists of questions from The Inquirer, saying in a statement that they contain “various inaccuracies.”

The firm did say it works to “comply with all securities, licensing, landlord-tenant, and other applicable laws and regulations.”

Now, the SEC wants to tell federal prosecutors about allegations concerning the divergence between RAD’s online pitches and its more downbeat official self-descriptions.

The allegations are contained in a complaint sent to the SEC by a fraudster-turned-self-styled whistle-blower named Barry Minkow, who said he gathered material from RAD for his report by pretending to be a potential investor in the company.

Late last month, the SEC asked Minkow for his consent to share the document with the Office of the U.S. Attorney for the Central District of California. Minkow gave his approval, according to copies of the correspondence that he provided to The Inquirer.

Since finishing his most recent prison stint for fraud and other offenses in 2018, Minkow has established a side business of researching companies he suspects of malfeasance and reporting them to the SEC as a whistle-blower. Whistle-blowers can sometimes claim a cut of what a company disgorges if they provide information used in a successful SEC investigation.

His report about RAD to the SEC is among 11 complaints he has filed with the agency. Another focused on National Realty Investment Advisors, a New Jersey-based firm with a big Philadelphia property-development footprint that promises large returns to investors on national TV and radio ads. NRIA has denied any wrongdoing and no government action has been taken against it.

“The sad reality is that many investors are relying upon a complete and total misrepresentation of material facts about the profitability and financial stability of the company to make an investment decision,” Minkow wrote of RAD’s advertisements in an October update to his report to the SEC on that company, originally filed in April. He provided the documents to The Inquirer.

RAD said in its statement that it strives to make its regulatory filings and offering materials “accurate and complete.”

RAD “is an incredible company making a positive impact on our investors, team of employees, contractors, neighborhoods, non-profits and more,” Mendenhall said in an email.

A U.S. Attorney spokesperson declined to say whether the office was conducting an investigation into RAD, citing Justice Department policy not to comment on any investigations that the office may, or may not, be pursuing. An SEC spokesperson also declined to comment.

No criminal charges or civil complaints are known to have been made against RAD or any of its employees.

RAD did not directly respond to questions about any potential investigations of the company. “RAD Diversified has and will respond to and cooperate with any requests from pertinent regulatory and law enforcement entities,” it said in its statement. “Terms offered to investors by RAD Diversified are in line with those offered by similar, competitor REITs.”

John Carney, who helps lead the securities, enforcement, and litigation team at BakerHostetler in New York, said any move by the SEC to share an outside report would not have been taken lightly by the agency. “The fact that the SEC is taking the time to share information with the Department of Justice is a serious step,” said Carney, who previously served as an attorney with both agencies.

‘The leading expert’

In the videos he posts to YouTube on a near-weekly basis, Mendenhall, 42, projects a clean-cut if casual figure, appearing in button-down shirts — only seldom wearing a tie — with a neatly trimmed Vandyke beard as he brightly talks up his business.

“I’m literally the nation’s leading expert in tax liens and tax deeds,” he boasts in one installment. “So we invest in that exact modality and make more money at it than anybody else.”

The entrepreneur also appears in many of the ads for RAD across Facebook, Facebook Messenger, Instagram, and other applications.

The pitches appear to be bearing some fruit: RAD had between 1,500 and 2,000 investors, as of late October, and was adding more at a clip of 200 per month, according to an email from a company official to Minkow. The official believed Minkow to be a potential investor at the time.

In other videos for one of RAD’s side businesses, a network of leasable off-the-grid-encampments called the American Survivalist Project — “a plan B for when disaster strikes,” according to the venture’s website — Mendenhall’s banter can take a darker turn.

“One of the scariest things that happen in the worst-case scenarios is people turn on people,” he said in one clip after listing a few such scenarios: a new, more-virulent pandemic; artificial intelligence run amok; nuclear war; or “the real war with China and Russia and cybertechnology and the Cold War.”

RAD’s survivalist-camp business is in the process of gaining control of 20,000 acres of rural property across multiple sites nationwide, Mendenhall said in an interview last month with the financial blogger and stock picker Jim Woods on Woods’ podcast, Way of the Renaissance Man.

But the bulk of the business’ holdings consists of residential real estate, filings show. While RAD also concentrates on areas of Texas, Idaho, California, and Florida for its growing portfolio of rental properties, according to the January offering circular, Philadelphia has been its primary locus of activity.

“Our biggest city is Philadelphia,…