SEC and Offering Fraud Actions
Offering frauds have long been an area of focus for SEC enforcement. Currently, it is one of the key types of cases on which the Division of Enforcement is focused. Typically, offering fraud cases are based on a business deals which are “too good to be true.” Frequently, the promised returns for a simple, small investment are claimed to be huge and available within a relatively short time.
The Commission’s most recent case in this area is different. In the most recent action in this area investors were offered interests in a privately held firm that was about to launch a familiar investment product – an ETF. The papers looked typical. The deal looked typical. It was a fraud. SEC v. Bolton, Civil Action No. 3:22-cv-00055 (M.D. Tenn. Filed January 26, 2022).
David Bolton, defendant, was previously a registered securities representative in Indiana. He is the owner of Millennia Shares, LLC, which had its principal place of business in Bowling Green, Kentucky. In October 2017, the state of Kentucky administratively dissolved the entity. Subsequently, Mr. Bolton established its principal place of business in Brentwood, Tennessee. In October 2020 the state dissolved that entity.
Over a period of about one year, beginning in August 2018, Mr. Bolton sold interests in his firm Millennia Shares. Potential investors were told in written memoranda and at meetings that the company would earn revenue by creating and launching an ETF, a popular, well known investment product. The memoranda furnished to potential investors listed typical items such as operating costs for the company and a salary of $7,000 or $10,000 per month for Mr. Bolton.
Ten investors responded, purchasing shares in Mr. Bolton’s firm. Following the investments Mr. Bolton withdrew funds from the company. The withdrawals far exceeded the amounts to which he was entitled under the terms of the offering documents. In addition, he diverted funds furnished by investors for a second firm employee. After the company ceased operations, he emptied the bank accounts. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is pending. See Lit. Rel. No. 25318 (January 26, 2022).