Commission Files Another Offering Fraud Action

Offering frauds have long been one of the staples of the Commission’s enforcement program. As the dozens of cases the agency has filed based on offering frauds, the only limits on stories and representations made in those cases to lure investors is the imagination of those who are dreaming them up. They range from the simple, such as telling potential investors a private company is about to be listed on a national exchange or that the company will shortly merger with a large and well known entity to much more complex tales that supposedly will lead to instant wealth.

The key to the frauds is to gain the trust of the investor so he or she will part with their funds. The approaches used to develop this trust are as varied as the schemes. One is church and religion. Schemes based on this approach frequently target members of their church reasoning perhaps that everyone can trust a fellow parishioner. Unfortunately the approach works all to often, as in the Commission’s most recent case in this area, SEC v. Bartlett, Civil Action No. 8:23-cv-00765 (C.D. Ca. Filed May 2, 2023).

Named as defendants in the complaint are: Brett Bartlett, the founder of the Dynasty entities named as defendant; Scott Miller, the brother-in-law of Mr. Bartlett; Dynasty Toys, Inc; The 7M Egroup Corp.; Concept Management Company LLC; and Dynasty Inc. The two individual Defendants were at one time members of the board of directors of each entity Defendant but resigned prior to the filing of this action.

This case centers on a two year period, beginning in June 1018. Messrs. Miller and Bartlett claim to share their Christian faith. They told potential investors that they were affiliated with a large church in Illinois and that their business model was based on family values.

Investors were assured that their funds would be used in three ways. One was for the purchase of toy inventory for resale. A second was to develop a pre-production gold mine. The third focused on acquiring and shipping face masks to government agencies and other organizations during the COVID pandemic. Based on these claims at least $20.5 million was raised from over 1,000 investors.

Contrary to Defendants’ representations about the use of the cash raised, about $1.1 million of the investor funds was misappropriated. Over $11 million of the investor funds was used to make Ponzi like payments. And about $21 million was supposedly used to back checks signed by Mr. Bartlett and sent to investors. The checks all bounced. In fact, the “rags-to-riches” story used to wrap the tales together regarding the business interests to be invested in were false. The interests purchased in the entities by the investors were not registered. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is pending.