Investor Funds Misappropriated
In many securities fraud actions, the investor is solicited to put his or her investment capital into a product being developed or some type of intellectual property rather than exchange listed and traded shares. In those situations it may be difficult or impossible to actually monitor the use of the funds and development of the claimed property, leaving the investor to rely only on reports from those making the solicitations. Yet monitoring progress is at best difficult and at worst impossible. More importantly, it is well known that in many instances investor capital is not used for the claimed purpose but at least partially, if not wholly, misappropriated. Consider, for example, a case resolved recently by the Commission, SEC v. Spargo, Civil Action No. 2:25-CV-01043 (D. Ariz. Filed March 28, 2025).
Named as defendants in this action are David A. Spargo, a resident of Mesa, Arizona and his two firms, CannaCloud, Inc. and D.A. Spargo & Co., LLC. The complaint alleged that Defendants defrauded about 33 investors out of about $1.65 million.
The investment in this case took place beginning in February 2021 and ended in December of the same year. Defendants represented to potential investors that their funds would be used for the development of CannaCloud’s business. Specifically, Defendants claimed that they were working on the development of an application that would permit those interested in marijuana access to obtain it from a dispensary. A 20% return was promised on the investment.
In fact, the investor funds were not put to use as promised. To the contrary, Defendant Spargo used the funds to play in casinos and for personal expenses. The Commission’s complaint alleged violations of Exchange Act Section 10(b) and Rule 10b-5.
Defendants resolved the matter with the Commission. Defendants Spargo and CannaCloud consented to the entry of permanent injunctions based on the provisions cited in the complaint. He is also barred Mr. Spargo from serving as an officer or director. In addition, a conduct based injunction was imposed as to Mr. Spargo which barres him from participating in any solicitation in the future except for his own account. The judgment against Mr. Spargo and CannaCloud directs them to pay disgorgement of $1,504,559 plus prejudgment interest of $313,449 on a joint and several basis. See Lit. Rel. No. 2025 (April 29, 2025).