Examples of the SEC’s New Focus on Retail Customers and Cyber
The Commission’s Enforcement Division under Chairman Clayton is focusing on retail investors and cyber. Two actions brought over the last two business days serve to highlight this focus, including the first brought by the new Cyber Unit.
SEC v. Plexcorps, Civil Action No. 1:17-cv-07007 (E.D.N.Y. Filed Dec. 1, 2017) is the Cyber Unit’s first action. It names as defendants the company, an unincorporated entity controlled by defendant Dominic Lacroix, a securities law recidivist. Sabrina Paradis-Royer, believed to be a romantic interest of Mr. Lacroix, is also named as a defendant.
The action centers on the sale of what the defendants call PlexCoin, claimed to be the next cryptocurrency. In the United States the defendants began their offering of unregistered interests in August 2017. It continues to the present.
Prior to the U.S. offering defendants initiated sales of the securities in Quebec, Canada. In July 2017 the Quebec Financial Markets Administrative Tribunal an entered injunction against Mr. Lacroix, prohibiting him from future violations of the Quebec Securities Act, based on his sales efforts.
Subsequently, defendants began offering interests in Plexcorps’ claimed crypocurrency in this country. Since August 2017 defendants have engaged in over 1,500 investor transactions, selling about 81 million PlewxCoin Tokens for about $15 million. Investors were induced to enter into these transactions through a series of claim which included: a representation that a team of experts around the world were involved; that the firm’s executives were hidden to avoid poaching by competitions; that new products were being developed; and the potential returns were enormous.
The representations were false. To the contrary, defendants misappropriated much of the investor funds. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b). The complaint is pending.
SEC v. MacCord, Civil Action No. 2:17-cv-01809 (WD. Wash. Filed Dec. 4, 2017) appears to be an example of the new retail investor focus. It is also an offering fraud action. Named as defendants are Donald MacCord, Shannon Doyle and Digi Outdoor Media, Inc. Mr. MacCord is the CEO of Digi, Ms. Doyle was the firm’s CFO, and the firm is in the outdoor sign business.
Mr. MacCord and Ms. Dole have been friends for over 20 years. Mr. MacCord founded Digi in 2009. Subsequently, he retained his friend as CFO. The business plan for the company called for the instillation of outdoor digital display signs for advertising around Washington, D.C.
To move forward the firm had to raise capital. From about 2013 through November 2014 the Digi and the two individual defendants raised about $4.5 million from over 60 investors who purchased promissory notes of Digi. Investors were told that the firm would generate revenue by leasing space to install digital signs for commercial advertising.
Throughout the period Mr. MacCord and Ms. Doyle diverted over $1.6 million from the company for their personal benefit. This was done through the use of a fictitious vendor they controlled. The vendor billed Digi for construction and improvements for work done on properties in Washington, D.C. Although there was no lease the invoices were paid.
In February 2015 the firm filed a registration statement with the Commission for its shares. The papers contained a misleading description of Digi’s business and finances. The registration statement was prepared with the assistance of Mr. MacCord and Ms. Doyle. Ultimately Mr. MacCord fired the auditors when they sought to verify key facts. The complaint alleges violations of each subsection of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is pending. A parallel criminal action was brought by the U.S. Attorney for the Northern District of California. See Lit. Rel. No. 24001 (Dec. 4, 2017).
Program: The Fourth Annual Dorsey Federal Enforcement Forum will be held on December 6, 2017. There will be panel discussions and presentation on EPA enforcement, SEC enforcement, investment advisers, international sanctions, FinTec, and FBI international corruption investigations, followed by a holiday party. Attend in person, listen on the web or watch a live stream; CLE available. For a detailed program and free registration click here.