SEC Halts A “Safe,” “High Return” Investment Scheme

When the returns are far above market and the investment is safe and carries little to no risk, more likely it fits into the not to be believed category. Yet time after time investors flock to investment programs supposedly built on such pillars. So it was with a mortgage investment program that raised millions of dollars and continued even as the Commission issued investigative subpoenas and prepared to file its complaint. Unfortunately the investment program should not have been believed. The only question now is how much money the Commission and its receiver can salvage for the investors. SEC v. Bryant, Civil Action No. 4:17-cv-00336 (E.D. TX. Filed under seal May 15, 2017).

Defendant Thurman Bryant formed Bryant United Capital Funding, Inc., also a defendant, in June 2011. Mr. Bryant is the firm’s only employee and the sole signer on its checking account. He began fund raising even before forming his firm, starting in early 2011 with his father, family and friends. Marketing was by word of mouth – no documents. Rather, investors were encouraged to call Mr. Bryant who would give them his pitch. Those who called were encouraged to refer others and, if they did, were rewarded with a referral fee.

Investors were told orally about the investment, assured of its safety and the manner in which their funds were invested. Mr. Bryant told investors that their funds would be used to facilitate the funding of mortgage loans which would immediately be sold to third parties for a fix fee. Investor funds would be held safe in a secure escrow account used solely to secure a line of credit from a hedge fund that Bryant United used to fund the mortgages. Investors would receive 30% distributions with no risk.

While Bryant United was a corporation, investors purchased limited partnership interests in the firm. Investors who executed the partnership agreement were provided payment instructions. They also received monthly account statements prepared by Mr. Bryant. Those statements purported to show the investors Escrow Capital Balance, Calculated Account Balance and Accumulated Account Balance.

To date about 100 investors have purchased interests, investing about $22.7 million with Mr. Bryant and his firm. Indeed, about $1.4 million has been raised since January 2017.

Defendants’ representations, as well as the account statements they received, were, however, false. No money was ever placed in a secure escrow account. No investment related operations were conducted. Rather, Bryant United transferred about 71% of the investor money, or $16.1 million, to the Wammel Group for speculative securities trading. The remaining 29% of the investor funds, or $6.6 million, was diverted to other purposes, including supporting Mr. Bryant’s life style and making payments to certain investors.

After the staff served a subpoena on Mr. Bryant and his firm in December 2016 investor funds were diverted to Carlos Goodspeed, a/k/a Sean Phillips d/b/a Top Agent Entertainment d/b/a Mr. To Agent Entertainment. Since January 2017 about $1.37 million has been transferred to Mr. Goodspeed. Notations on wire transfer documents indicate that the funds were to be used for the promotion of concerts by Taylor Swift and Aubrey Graham. Other records indicate Mr. Goodspeed previously pleaded guilty to a felony theft charge, has been found liable on two default judgments tied to the entertainment industry and is also involved in litigation linked to concert performances. In April 2017 other funds were wired to Mr. Bryant’s father. He is one of the few investors who has received payments which exceed their initial investment.

The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The court as entered a temporary freeze order and appointed a receiver at the request of the Commission. See Lit. Rel. No. 23838 (May 22, 2017).

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FAKE NEWS, FAKE TENDER OFFER, YIELDS SEC, DOJ CHARGES

The Commission brought an enforcement action, in conjunction with the Manhattan U.S. Attorney’s Office, charging Robert Murray with conducting a fake tender offer using fake news. The purpose was to manipulate the share price of Fitbit, Inc. It worked – the manipulation was not fake. Mr. Murray caused the share price to spike over 350% in one day. SEC v. Murray, Civil Action No. 1:17-cv-03788 (S.D.N.Y. Filed May 19, 2017).

Mr. Murray is a Virginia based mechanical engineer. In November 2016 he took a series of steps to prepare for, implement and execute a fake tender-offer for Fitbit shares using fake news:

The plan: The plan was to profit from an increase in the price of Fitbit shares resulting from a fake tender offer using by fake news.

Preparation: To create a fake tender offer Mr. Murray decided to obtain EDGAR login credentials fin the name of some else. Using a California IP address the name of an Executive of a Pennsylvania firm with an office in Shanghai was obtained. The name of the Executive was then used to create a new email account. Mr. Murray filled out Form ID for EDGAR using the Executive’s name and the newly created email address for a firm called ABM Capital. The form was finalized with a false notary stamp and used to secure EDGAR login credentials for ABM Capital.

Study: Mr. Murray carefully studied prior Commission cases where similar actions had been undertaken. He also gathered news articles and other materials. Research was conducted regarding the forms to file.

Implementation: By November 9, 2016 Mr. Murray was ready. He purchased Fitbit call options in the morning. An attempt was made to file Schedule TO-C on EDGAR related to Fitbit. The filing was rejected because it contained an incorrect identification number for Fitbit. A second Form TO-C was filed. It stated that ABM Capital had submitted a letter to the Fitbit board of directors proposing to acquire all of the outstanding Class A shares at a price of $12.50 per share. The filing referenced earlier communications, listed the Executive as the CFO of ABM Capital and used the address for the Shanghai office of the Pennsylvania firm.

Impact: News outlets reported the tender offer proposal. The price immediately spiked by over 10% to $9.28 per share. By the close of the market the price retreated to $8.86 per share.

The end: Mr. Murray sold his options realizing profits of $3,118. The company later issued a press release denying that there was any tender offer. The fake news caused real harm to the capital markets. Over 25 million shares of Fitbit were traded, up 77% over the prior day. Investors purchasing shares following the announcement paid an artificial price.

The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Sections 10(b) and 14(e). The Commission’s case, as well as that of the U.S. Attorney’s Office, is pending. See Lit. Rel. No. 23836 (May 19, 2017).

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