Swift, Wrongful Action – the Predicate for an Enforcement Action

Many Commission enforcement actions take a considerable period of time to unfold. It is not infrequent for the underlying facts to develop over long periods of time. That period is often followed by another lengthy period of time during which the enforcement action is crafted and later litigated if it does not settle on filing. Fortunately, for the agency, Congress saw fit to endow it with a lengthy statute of limitations.

In contrast, in some instances actions develop quickly. For the Commission that typically means months. Few unfold within days. Developed and unfolded in just a handful of days, however, is a case just recently filed. In the case, the basic facts occurred during the month of June 2024. SEC v. Kim, Civil Action No. 25 Civ. 3796 (S.D.N.Y. Filed May 7, 2025).

Named as defendant is Richard T. Kim, the former CEO of Zero Edge. The firm was founded in 2018. From that point Mr. Kim served as a general partner and Chief Operating Officer of a company that was a crypto asset entity based in New York City. Mr. Kim also served as the COO of Global Foreign Exchange and Emerging Markets Trading for a Commission registered broker-dealer. In addition, he was co-COO of foreign Exchange and Emerging Markets Trading for another registered broker-dealer and a member of the New York State Bar from 2007 through 2012.

While serving as CEO of Zero Edge Corporation at the beginning of June 2024, he is alleged to have misappropriated and lost about $3.7 million of $3.8 million raised from investors over a period of about 4 days. The losses stem from trading crypto assets in his personal account and gambling.

Mr. Kim raised the funds in a “seed fundraising round” for the company. The purpose was to develop a block-chain based casino. The funding round began in early June; it ended on June 24, 2024. On June 21 and 22, 2024, just under $100,000 was sent to Mr. Kim’s personal bank account. By June 24, 2024, almost one quarter of a million dollars had been sent to certain unknown crypto asset wallets.

On June 30, 2024, Mr. Kim emailed certain equity investors. He informed those investors that he had an “urge” to use the funds in a series of risky crypto asset trades. The losses totaled $3.7 million. He asked for three months to rectify the situation. Subsequently, he fled to Dubai and later South Korea. The firm was liquidated. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b) and Rule 10b-5. See Lit. Rel. No. 26304 (May 7, 2024). The U.S. Attorney’s Office for the Southern District of New York filed parallel criminal action.

New York Real Estate Development Is Center of Fraud Scheme

Offering fraud cases are one of the most typical types of schemes used by those seeking to raise capital through a fraudulent scheme. The most recent action based on this type of scheme is also one of the most popular. Here Defendants told investors that they proposed to develop a parcel of Manhattan real estate that would generate profits for investors. The proposal drew investors who provided $6 million to the schemers. While the scheme sounded plausible those in charge apparently made little effort to carry through with the plan – they simply stole the investor money. SEC v. Schuster, Civil Action No. 25 Civ. 3800 (S.D.N.Y. Filed May 7, 2025).

Named as defendants are: Joshua Schuster, a resident of Boca Raton, Florida; and Schuster Enterprises LLC (d/b/a Silverback) a New Yor real estate development company organized in February in February 2016. The firm is owned by Defendant Schuster and his family.

The focus of the action is the sale of interests in Schuster Enterprise and the theft of the resulting funds. Beginning in August 2018, the firm’s shares were sold to investors by Mr. Schuster. The sales pitch focused on selling interests in limited liability companies. Each was suppose to develop high-end condos located at Second Avenue, New York City.

Investors raised about $6 million. The funds, however, were not used to develop the properties. To the contrary, over $2 million was diverted to making payments for the personal benefit of Mr. Schuster. Some were also used to fund real estate projects developed by Defendants. For one Ponzi-like payments were made to investors in other projects. In connection with the proposed projects Defendants also failed to disclose certain financial information about the so-called Second Avenue Project. Despite having raised substantial sums, Defendants continued to sell interests in the claimed projects.

Defendants attempted to conceal their conduct by providing investors with periodic reports on the progress of the claimed development. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). See Lit. Rel. No. 26305 (May 7, 2025).