Commission Files Another Offering Fraud Action
While offering fraud actions have long been a Commission staple, with the advent of the retail investor focus there seems to be an increase in the number of these cases being brought. In the latest variation of these cases the defendant typically promised to invest funds in ventures such as a Tribal Lending Entity or a consumer lending operation. Promised returns ranged up to 20%. The only real returns were for the defendant who misappropriated much of the investor money. SEC v. Harbour, Civil Action No. 2:18-cv-002401 (D. Az. Filed July 31, 2018).
Defendant David Harbour is a former FINRA member but has not been associated with a broker-dealer since January 2008. He has long been involved in the payday loan business. In 2014 Mr. Harbour began developing a Tribal Lending Entity. Under an agreement through one of his controlled entities, a line of credit for $10 million was extended to the Tribal Lending Entity at an annual interest rate of 16%. The borrower planned to enter into the online consumer lending business. Over the next two years Mr. Harbour entered into other business ventures.
To raise capital for his various business entities, Mr. Harbour began soliciting investments using four controlled entities as he multiplied his business activities. Investments were sought from a series of investors based misrepresentations. For example, one investor was convinced to invest $500,000 with Mr. Harbour and his entities based on the representation that the funds would be used for an installment lending operation that would be run by an American Indian tribal entity. In return for his investment Mr. Harbour’s entity issued a promissory note to the investor with a 12% annual interest rate.
Another investor was convinced to invest $1 million with Mr. Harbour and another of his controlled entities. In this instance the investor was told that the funds would be used for consumer lending and a project related to healthcare. The investor was promised an annual return of 20%. A third investor was convinced to invest $500,000 for the Tribal Lending Entity based on the promise that he would recover lost funds from another Harbour connected investment. In return for his funds the investor received a promissory note tied to a lending agreement. The note carried a 15% annual return rate.
Overall Mr. Harbour raised over $2.4 million from a number of investors. He misappropriated over $1.5 million for his personal use. The complaint alleges violations of Exchange Act section 10(b) and Securities Act section 17(a)(2). To resolve the action Mr. Harbour consented to the entry of a permanent injunction. He also agreed to pay disgorgement of $1,535,000, prejudgment interest of $97,072 and a penalty of $1,535,000. See Lit. Rel. No. 24220 (July 31, 2018).