People are always searching for the next great thing; the next great innovation; the next great adventure; and the next great investment. Often it is the search for that safe, sure thing return; the one where the investment can’t be lost; and, of course, the return is good and above average. Enter the Commission’s latest investment fund/Ponzi scheme case. The action centers on a scheme to buy blocks of tickets to the Broadway show Hamilton which is sold out. Everyone wants to go; no tickets are available; but for those who invest now there is a guaranteed return and a split of the profits, according to the promoters. SEC v. Meli, Civil Action No. 1:17-cv-00632 (S.D.N.Y. Filed January 27, 2017).
The defendants in this action are Joseph Meli, Matthew Harriton, 875 Holdings, LLC, 127 Holdings, LLC, Advanced Entertainment, LLC and Advanced Entertainment II, LLC. Messrs. Meli and Harriton directly or indirectly control the entity defendants. Beginning in January 2015, and continuing through October 2016, four offerings were conduct using the entity defendants centered on a sale pitch tied to ticket sales. About $81 million was raised in the offerings which were similar but not identical.
- 875 Holdings: In August the firm filed a Form D with the Commission, stating that a private offering of equity securities would be made. No business was specified; the firm had no revenue but it had sold over $1 million is securities. A subsequent amendment to the Form D sated that 25 persons had invested about $3.4 million. The investments were to be pooled and the cash used to purchase a participation interest in tickets for resale. Investors were told they would receive a participation percentage within nine months of 10% and overall 50% of the profits.
- Advance Entertainment: From January 2015 through October 2016 the firm received at least $50 million from what the complaint calls “apparent investors.” In December 2015 a “Funding Agreement” was executed by Mr. Meli with an investor which represented that the firm had an agreement to purchase 35,000 tickets to Hamilton. The investor was to receive his investment back within eight months along with a 10% return and 50% of the profits. The representations regarding the contract were false.
- Advance Entertainment II: The firm filed a Form D with the Commission in March 2016. As with the filing for 875 Holdings, no business was specified; the firm had no revenue but had made sales of over $10 million. By August the firm filed a Form D reporting an offering of $13 million. Investors were told their funds would be pooled to purchase tickets for high profile events, including Hamilton and an Adele concert. Investors were to receive a 10% return and 50% of the profits.
- 127 Holdings: From January through October 2016 the firm received at least $7.7 million from “what appear” to be investor funds. One investor in the enterprise who put up $500,000 stated that the sales pitch was the same as for Advance Entertainment – tickets for Hamilton would be purchased in bulk and investor funds would be used to pay the costs.
In fact there was no contract to purchase a block of Hamilton tickets. From January 2015 through October 2016 Messrs. Meli and Harriton caused the four entities to spend about 10% of the money raised with third party entities that appear to be connected with thicket selling businesses. Indeed, in December 2016 Mr. Meli stated he had been running a “shell game” that involved using certain investor funds to pay back other investors. During the period the Defendants also used about $2 million of the investor money for personal expenses. The complaint alleges violations of each subsection of Securities Act Section 17(a) and Exchange Act Section 10(b). The complaint is pending. The U.S. Attorney’s Office for the Southern District of New York filed a parallel criminal action. See Lit. Rel. No. 23723 (January 27, 217).