SEC sues Florida firm that raised $410 million for IPO-linked fraud -filings
By Jonathan Stempel
NEW YORK (Reuters) -The U.S. Securities and Alternate Fee on Friday sued a Florida agency it mentioned raised not less than $410 million by fraudulently promising buyers entry to non-public corporations that had potential to conduct preliminary public choices.
In a civil criticism filed in Manhattan federal courtroom, the SEC additionally sought asset freezes towards StraightPath Enterprise Companions LLC and its three founders, to assist arrest “ongoing fraud” on the agency.
The SEC mentioned StraightPath raised the $410 million from greater than 2,200 buyers in 14 international locations between November 2017 and February 2022, when it agreed to cease soliciting investments.
U.S. District Choose Lewis Kaplan mentioned at a listening to that he’ll grant a lot of the SEC’s requests quickly “to protect the established order,” pending one other listening to on Might 26.
The SEC mentioned StraightPath pitched its funding autos as a approach for bizarre buyers to personal “extremely coveted,” hard-to-find pre-IPO shares in such corporations as plant-based burger maker Inconceivable Meals and cryptocurrency trade Kraken.
However the SEC mentioned the Jupiter, Florida-based agency usually didn’t have the shares, made “Ponzi-like” funds to some buyers, and commingled buyers’ belongings with its personal.
It additionally mentioned StraightPath charged “exorbitant, undisclosed charges,” permitting founders Michael Castillero, Francine Lanaia and Brian Martinsen and fund supervisor Eric Lachow to pay themselves about $75 million and their gross sales brokers almost $48 million.
“The defendants have profited handsomely,” SEC lawyer Lee Greenwood informed Kaplan.
StraightPath says it expenses buyers a one-time 5% “due diligence” payment, plus 2% administration and 1% expense charges.
StraightPath’s legal professionals known as the SEC requests “wholly unwarranted,” citing the agency’s years of cooperation with the regulator.
“They’re working into courtroom with an incomplete image,” Samson Enzer, one of many legal professionals, informed Kaplan.
The legal professionals additionally mentioned the SEC “apparently prompted” the U.S. Division of Justice to open a grand jury probe into StraightPath, and that asset freezes may make it tougher for the person defendants to defend towards that legal probe.
The Justice Division didn’t instantly reply to a request for remark.
In response to the SEC, StraightPath funds maintain greater than $200 million of securities however are quick $14 million of pre-IPO shares for seven corporations, together with Inconceivable Meals and Kraken. The SEC can also be searching for a receiver for the agency.
The case is SEC v StraightPath Enterprise Companions LLC et al, U.S. District Courtroom, Southern District of New York, No. 22-03897.
(Reporting by Jonathan Stempel in New York; Enhancing by Matthew Lewis, Barbara Lewis, Chizu Nomiyama and Richard Chang)
