by T. GormanPosted on Posted in SECActions

Investment Advisers are supposed to act in the best interests of their clients and not engage in self-dealing. Yet in one recent case the Commission charged the adviser with just that, engaging in self-dealing. SEC v. Taller, Civil Action No. 1:25-cv-03537 (S.D.N.Y. Filed April 29, 2025).

Named as defendants are Derek Taller and two investment funds he managed over a six-year period, beginning in 2018, StHealth Capital Investment Corporation and Vision BioBanc Holdings, LLC. At the time StHealth Capital operated as a business development company. He also served as an external investment adviser to each of the funds.

In 2020 Defendant Taller, while serving as CEO of Vision Holdings, disseminated offering documents to prospective investors. Those materials stated that Vision Holdings operated a board of directors and would be audited by one of the “Big Four” accounting firms. The materials also stated that the auditor’s work would be reviewed by Vision Holdings Audit Committee. The representations were false. In fact, the firm had little supervision.

As investment adviser to both Vision Holdings and StHealth, Defendant Taller owed them fiduciary duties to act in the best interests of each firm. Mr. Teller repeatedly violated those duties however. While serving in those positions he misappropriated at least $300,000 from Vision Holdings. Later he misappropriated an additional $200,000.

In addition, Defendant Taller engaged in a course of conduct that involved both firms. He at one point, for example, directed both firms to make loans to Company A and its affiliates, a firm in which Mr. Taller had just acquired an interest. Mr. Taller continued to direct Vision Holdings to make loans until the total exceeded $21 million. The Commission’s complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Advisers Act Sections 206(1) and 206(2) and Section 57(a)(4) of the Investment Company Act. See Lit. Rel. No. 265300 (May 1, 2025).

by T. GormanPosted on Posted in SECActions

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).