Investing – Tread with Great Care
Fraudsters typically craft a sales pitch for would be investors designed to entice them into turning over their money for a claimed investment that only later becomes known as a fraudulent scheme. Earlier this week, for example, the Commission filed action focused on Syed Arham Arbab, a college graduate now serving 60 months in federal prison for conducting a multimillion dollar fraudulent free riding scheme. There the inducement for investors was trading at no cost, using the capital of the broker-dealer who makes instant funds available on account opening in the hope of gaining new clients and profits.
In offering fraud and Ponzi schemes cases the inducement varies but frequently centers on securing returns which are typically most difficult to obtain. There those who implement fraudulent schemes frequently promise, for examples, returns that are not typically available except in rare circumstances. At times such an offer warns off a potential investor. In some instances promising unrealistic returns may in fact warn possible investors off. In other instances, unfortunately, it attracts would be investors who only later come to realize that the sales pitch was not only unrealistic but false. That is the case in the Commission’s most recent case in this area. There investors were promised large returns. SEC v. Igbara, Civil Action No. 1:22-cv-06669 (S.D.N.Y. Filed November 2, 2022).
Defendant Jebara Igbara is the founder of Halal Capital, LLC, a private investment fund. It was supposed to focus on making Quran-compliant investments. In addition, when Defendant Igbara began soliciting investors Muslim investors October 2019 he promised that his business expertise would result in returns on an analyzed basis of about 40% or more within a year. The fact that the investments were made in a manner that was compliance with his, and those of the investors, interpretation of the Quran facilitated the sales pitch.
Less than one year after initiated his scheme Defendant had raised about $8 million from over a dozen different investors. None of the investor money was invested. To the contrary, the funds were misappropriated by Defendant. The investor funds were used for his own expenses or, in some instances, to make Ponzi like payments.
The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is pending. The U.S. Attorney’s Office for the Eastern District of New York announced criminal charges against Defendant. The SEC’s Office of Investor Education and Advocacy “reminds investors to thoroughly research investments and warns them about making investment decisions based solely on shared affinity,” according to a press release dated November 2, 2022, discussing the case.