by T. GormanPosted on Posted in SECActions

Offering frauds continue to be one of the leading categories of actions brought by the Commission. The variety of these cases is only limited by the imagination of those conducting them. Under that view the scope of these cases is virtually is limitless. The Commission’s most recent case in this area centers in part on the new hot topic de jure, artificial intelligence. SEC v. Tadrus, Civil Action No 1:23-cv-05708 (E.D.N.Y. July 28, 2023).

Named as defendants in this action are: Mina Tadrus and Tadrus Capital LLC, respectively, a registered broker-dealer and the founder of Tadrus Capital. The Fund targeted members of the Egyptian Coptic Christian community.

Beginning in September 2020 Defendants solicited and sold interests in the Tadrus Fund. It was supposed to be a pooled investment vehicle. Over the period at least 31 interests were sold to investors. The amounts varied from $20,000 to $345,000. Overall, about $5 million was raised.

Investment accounts were held in the name of the firm. None were segregated. The sales pitch in part was detailed on the website for at least one version. It identified the firm as a “global quantitative alternative investment manager.” It also claimed that the firm “invest[ed] our clients’ capital in multiple quantitative investment strategies, including a fully systematic quantitative global macro investment program covered all asst classes.” The strategy was implemented “virtually 24/7” and used “stop losses” and short sales.

Investors were told that their money would be pooled and invested in “the world’s first private high-yield and fixed income quantitative hedge fund.” It would use “artificial intelligence-based high-frequency trading models.” Investors were supposed to be paid 1.5% or 2.5% on the first of each month. This gave each investor a return of 18% or 30% per year.

In fact, large portions of the money was used for the benefit of Defendants. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Advisers Act Sections 206(1), 206(2) and 206(4). The case is in litigation.

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by T. GormanPosted on Posted in SECActions

Crypto assets continue to be popular despite the fact that the SEC has filed a series of enforcement against actions against the issuers and others alleging a variety of law violations. Those range from the sale of unregistered securities to fraud. Many of the issuers have also been charged with conducting offering frauds and Ponzi like schemes. Nevertheless, investors continue to invest their hard-earned cash despite the risks, hoping apparently to hit the jackpot. Most don’t.

Hex, Pusechain, Pulsex, and Richard Schueer are the latest to be named as defendants in an SEC enforcement action centered on fraudulent offerings. SEC v. Schueler, Civil Action No. 1:23-cv-05749 (E.D.N.Y. Filed July 31, 2023). Mr. Schueer is a U.S. internet marketer residing in Finland who uses the entity defendants to conduct his operations. PulseChain and PulseX are security platforms created and maintained Defendant Schueer, also known as Richard Heart. Through three fraudulent offerings he raised over $1 billion beginning in December 2019.

In the first offering Mr. Schueer/Heart offered and sold Hex tokens. Investors were promised high-yield “Blockchain Certificate of Deposit” on the Ethereum network. Investors were also offered a “staking” through which if they tied up their coins for a period they would get an average annual return of 38% from the tokens give to them at the end. Over a period of about 11 months, beginning in November 2019, about 2.3 million ether or ETH were deposited by investors valued at $678 million. Investors turned over their ether in return for Hex tokens. Defendants essentially gained control of a large number of coins while creating the appearance of demand for Hex tokens.

Beginning in July 2021, Mr. Schueer offered investors the opportunity to deposit their crypto assets for the promise to deliver PLS and PLSX tokens in the future. About $354 million was deposited in PLS tokens and $676 in Pulse X assets to its wallet address in return for the promise of future delivery of PLSX tokens. In fact, the tokens were securities under the teachings of the Supreme Court in Howey.

Finally, Schueer and PulseChain misappropriated at least $12.1 million of PulseChain investor funds. Much of the investor money was used by Mr. Schueer/Heart for personal purchases. The complaint alleges violations of Securities Act Section 5(a), 5(c) and 17(a)(1) & (3) and Exchange Act Section 10(b) and Rule 10(b)-5-(a) and (c). The case is in litigation.

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