by T. GormanPosted on Posted in SECActions

While offering fraud actions are a key staple of the Commission’s main street investor focused Enforcement program, many involve public entities. Indeed, the agency is typically thought of in the context of public companies and exchanges. The latest case in this area filed by the agency tells a different story. The closest the firm at the center of this case came to being a public entity is when the promoter spun stories about the future of the firm and the idea that it would yield huge profits from operating a licensed marijuana dispensary network after becoming public. SEC v. Brickner, Civil Action No. 8:20-cv-00921 (M.D. Fla. Filed April 21, 2020).

Defendant Steven Brickner was the principal of a pharmaceutical company and a series of related entitles. He claimed on Linkedin to have created a number of venture capital, finance and other commercial firms in the Tampa, Florida area.

Mr. Brickner began soliciting investors in 2015 for a venture he formed in September 2016 in Colorado called High Country. The privately held firm was projected to become publicly traded and then a Colorado licensed marijuana dispensary network based on assets to be acquired.

Potential investors were told that their funds would be used to acquire the assets necessary for High Country to enter the marijuana business. The deal was supposedly “on track” for the firm to become the largest cannabis operation in the United States by the fourth quarter of 2017. Mr. Brickner was engaged in planning an IPO for the second or third quarter of that year investors were told. The projections valued the offering at $2.6 million. Current investors would thus have a 2500 to one conversion ratio.

Materials regarding the offering gave investors the details of the deal. Expenses were estimated at $402,000 for software development, technology and product design. Start-up costs would be about $215,000 for an actuarial study, locating an insurance carrier, organization, licensing and ongoing operation costs.

Typically, investors were asked to sign agreements titled “Simple Agreement for Future Equity” or “SAFE” with Mr. Brickner and his firms. A deal was in place for the network and a trademarked logo, according to the information given to investors. Participating investors would receive preferred shares or capital stock.

The pitch brought in about $5.5 million from 60 investors. The claims were false. There was no deal; no planned IPO; no trademarked logo. Mr. Brickner’s hand was on the cash however – he misappropriated large portions of the investor money. The Commission’s complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is pending. See Lit. Rel. No. 24800 (April 21, 2020).

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by T. GormanPosted on Posted in SECActions

Since the unraveling of Bernard Madoff and his giant Ponzi scheme in 2008, offering frauds have been a key focus for SEC Enforcement. Since then it seems there has been a never ending stream of offering fraud actions. The main street investor focus of the Commission clearly helps fuel this trend.

The Commission’s latest action in this area began shortly before FINRA banned the schemer from the securities business. The regulator’s order, however, did not undercut or halt the fraudulent scheme. To the contrary, over a four-year period, beginning in 2014, over $5 million was raised from about 20 investors and misappropriated by the banned broker. SEC v. Conley, Civil Action No. 1:20-CV-70 (N.D. W.Va. Filed April 16, 2020).

Phillip Conley held Series 7 and 66 securities licenses while associated with a registered broker-dealer. In December 2015 Mr. Conley was suspended by FINRA from association with a broker-dealer in any capacity for failing to comply with a FINRA arbitration award.

The year before Mr. Conley formed ALPAX LLC and its affiliated shell entities. ALPAX supposedly provided management and consulting services. Investors, solicited on the phone and in person, were sought for a variety of investments tied to ALPAX, some of which were discussed in PPMs used in the solicitations. For example, one PPM claimed that the funds would be invested in Student Housing tied to real estate transactions in developed higher education markets, primarily on the east coast. Another stated that the money would be invested in privately held firms in real estate identified with oil and gas technologies.

In some instances, investors were told about other claimed investments in personal solicitations. For example, Mr. Conley told some investors that their funds would be used to convert apartment buildings and other properties into dormitories for West Virginia University. Others were told that the funds were to “close a big deal.” Investors were also furnished with account statements, confirming their investments.

Despite M. Conley’s apparent professionalism and knowledge, the representations were false. There were no investments in Student Housing; no investor funds were put into oil and gas assets; buildings were not constructed for the University; and there was no “big deal.” To the contrary the money went to Mr. Conley – he misappropriated the investor funds. 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 pending. See Lit. Rel. No. 24798 (April 18, 2020).

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