Ponzi schemes and offering frauds are among the most prevalent type of cases filed by the Commission. The actions usually follow similar patterns. Typically, in a Ponzi scheme the shareholder purchases interests in either a firm with no assets or that may not exist. In an offering fraud the investors generally acquire shares in return for his or her investment but there is often little or no actual money or assets from which the promised returns can be paid. The Commission’s latest case in this area has a mix of elements, SEC v. Rhew III, Civil Action No. 1:24-cv-00771 (M.D.N.C. Sept. 25, 2024).

Named as Defendant is William Rhew, a resident of North Carolina and the sole owner of Chadley Capital. He is also the president of Chadley Capital LLC. The firm recently consented to an involuntary bankruptcy. It is not registered with the Commission. Chadley Management Inc., d/b/a Spartan Safe, operates retail stores in several states. It specialized in selling gun safes.

Beginning in November 2017 Defendant solicited investments using notes called “Subordinated Debt Offerings,” issued by Chadley Capital. Investors were guaranteed they would earn 18% to 24% returns. The funds would supposedly be generated from private investments in manufacturing debts. In fact, Chadey did not hold any interests in manufacturing firms.

Defendant operated the program essentially as a Ponzi scheme/offering fraud. As investor capital was generated, Defendant took the funds out. Investor money was used to purchase personal items for Mr. Rhew rather than make the promise investments. Nevertheless, investors were provided with account statements depicting their interests in the firm. The statements also supposedly reflected the increasing value of the so-called investments. Unfortunately for the investors, the account statements were fictitious, as were the investments. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). See Lit. Rel. No. 26129 (Sept. 25, 2024).

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We are close to the fiscal year end for the government. As usual, the Commission is filing more cases than typical just as in earlier years, although the typical flood of new actions is not happing as in earlier years. Nevertheless, by next Tuesday a significant number of new actions will have been filed. The categories and types of cases are the traditional ones such as offering frauds. Indeed, one of the cases filed this week centers on two offering frauds, SEC v. Blanchard, Civil Action No. 2:24:cv-02437 (D. Ka. Filed Sept/ 23, 20-24.

Named as defendants are: Anthem Hayek Blanchard and Anthem Holdings Co. Mr. Blanchard founded the company named as defendant in 2019. He serves as its CEO. The company was in the software development business and based in Oklahoma.

Defendants conducted two offerings of securities to raise funds for the company. The first was known as the “Series A” offering. It was conducted in 2020 and 2021. To solicit investors Defendants used significantly inflated revenue projections for the firm. Investors were told that the projections were based on financial models. They were supposedly tied to company contracts that had been developed over time. This process resulted in $5 million of investments for the software company from 200 investors. The representations made to investors about the firm were false.

The second offering was called “Pre-Series B.” It was a convertible note offering conducted in 2021 and 2022. To solicit investors Defendants some were told about supposedly existing clients. Other investors were told that the company was close to securing another group of investors. Again the claims were false. The complaint alleges violations of Exchange Act Section 10(b) and Securities Act Section 17(a). See Lit. Rel. No. 26121 (Sept. 23, 2024).