A Streaming Service Fronts for a Boiler Room
Those conducting offering frauds often tie the company and the shares they are peddling to the latest public craze. For a while blockchain and crypto was all the rage. The prices of some coins and firms vacillated wildly up and down. Then came marijuana and again the prices were highly volatile. The SEC’s latest case in this area used a different hook to sell investors on the idea of putting in their hard-earned cash into the venture – a streaming service. Everyone knows that streaming is the future of the film and TV business, right? Maybe; but maybe not; or at least not in this form. SEC v. Vuuzle Media Corp., Civil Action No. 2:21-cv-01226 (D. N.J. Filed January 27, 2021).
The company Defendant is in the video streaming business. Defendant Ronald Flynn is a resident of the Philippines and the UAE and the founder of the firm. He is also its majority shareholder and is subject to at least two state cease-and-desist orders, one issued by the Ohio Department of Securities and the other by the California Department of Business Oversight. Defendant Ricard Marchitto, a retired dentist, claimed to be a vice president of marketing.
The history of Vuuzle is one of shifting sale pitches to raise cash from investors – sales programs orchestrated by Mr. Flynn – while concealing the truth. Beginning in September 2016 Mr. Flynn told investors that Vuuzle was in the process of building a mobile phone application called Bonk.live initially and later Bonk.be.live. The application was supposed to stream live performances.
Revenues were supposed to be in the millions of dollars as investors were expected to flock to put their money into the company. Yet from late May through mid-November 2018 the average number of devices using Bonk.live was 371. Indeed, Defendant Flynn was told by one of the firm’s advisers that discussions about the application were “terrifying” since it was so “weak and underdeveloped.” By year end the company and its major shareholder were refocusing on TV streaming.
Subsequently, the firm became a “front” in the words of the complaint for Mr. Flynn and a boiler room operation. The focus was to sell shares of the company, primarily from the Philippines. While investors were told that 99% of the funds raised would be plowed into developing the business, it was a lie. Large portions of the funds raised were used to pay commissions. About $10 million was misused by Mr. Flynn.
Marketing was conducted using a series of misrepresentations. Those include false promises of an IPO; false claims of future dividends; and concealing the role of Mr. Flynn in the company. Overall, only $2 million of the $14 million raised from investors was put back into the company. Defendant Marchitto substantially assisted with these efforts.
The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Sections 10(b) and 15(a)(1). The complaint is pending. See Lit. Rel. No. 25017 (January 27, 2021).