by T. GormanPosted on Posted in SECActions

Offering frauds are among the most common type of actions brought by the Commission’s enforcement division. The types of schemes created to lure investors into parting with their hard-earned money in exchange for some form of security are virtually endless.

What also varies significantly is the amount of money raised by the scheme. Some schemes are only able to create a small amount of interest among investors yielding little cash. Others raise millions of dollars. At the same time, few are able to raise the kind of investor interest and cash as the Commission’s most recent case in this area. At the time the complaint was filed the case was on-going and raising millions despite a promise from those behind it to stop. SEC v. Drive Planning, LLC. Civil Action No. 1:24-cv-03583 (N.D. Ga. Filed August 13, 2024).

Named as defendants are: Russell T. Burkhalter and Drive Planning, LLC. Mr. Burkhalter at one time held a Series 65 securities license and is a Georgia resident insurance agent. He is also the founder, owner and alter ego of Drive Planning. The company was organized in 2015 as a limited liability firm under the laws of the state of Georgia.

Beginning in 2020, and continuing through at least June 2024, Defendant Bukhalter aggressively marketed and sold interests in Drive Planning called Real Estate Acceleration Loans or REAL. The interests were described in promotional materials as a bridge loan promising to pay a return of 10% in three months. Potential investors were told by Defendants that trained sales agents would pool their funds and loan them to property developers who would use the money to enter into joint ventures that would raise the funds necessary to pay the promised returns to REAL investors. By the end of June 2024 over 2,000 investors had purchased the interests being marketed by Defendants. Over $300,000,000 had been raised from investors.

Drive Planning did not, however, have any legitimate way to raise the funds required to pay the promised 10% three month returns, according to the complaint. To the contrary, the payments actually made to investors were the product of classic Ponzi scheme fraud – portions of the investor money was used to make the payments labeled as “returns.”

Defendant Burkhalter pledged to halt the operation and the work of the sales agent on June 21, 2024. There was no halt. Defendant Burkhalter is the signatory on bank accounts which are alleged to contain millions of dollars of investor funds. These facts, alleged to constitute violations of each subsection of Securities Act Section 17(a) and Exchange Act Sections 10(b) and 20(a), require immediate relief temporary relief in the form of an asset freeze and appointment of a receiver, the Commission told the court. The investigation continues as the court considers the requests for immediate temporary relief. See Lit. Rel. No. 26076 (August 14, 2024).

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by T. GormanPosted on Posted in SECActions

Offering frauds are one of the most prevalent types actions brought by the Commission, a point that has been discussed repeatedly. Those actions are not typically rolled together with crypto assets into a pyramid scheme operated off-shore appears to be having a more significant impact, however. One recently filed action is built on those elements, SEC v. Nova Tech Ltd., Civil action 1:24-cv-23059 (S.D. Fla. Filed August 12, 2024).

Named as defendants in this action are: NovaTech Ltd., a company registered and formed under the laws of St. Vincent and the Grenadines in September 2019; Cynthia Petion, a U.S. citizen currently residing in Panama who has been described as the founder, sole shareholder, Director, Managing Member and CEO of NovaTech; Eddy Petion, a U.S. citizen and the husband of Cynthia Petion who is believed to be in Panama; Martin Zizi, a promotor of NovaTech; and James Corbett, Corrie Sampson, Dapilinu, Dunbar, John Garofano and Marsha Hadley, each alleged to be involved in the scheme.

Over a four-year period, beginning in 2019, Cynthia and Eddy Petion operated a crypto trading investment and pyramid scheme largely through NovaTech. The multi-level marketing structure or MLM was used to raise crypto assets valued at over $650 million from over 200,000 investors in this country and others. Many of those targeted were in the Haitian-American community.

Potential investors were solicited through a variety of mechanisms. Those included public websites, social media, a network of promotors and others. Potential investors were told that the firm would pay average returns of 2-3% per week – its rate of return in recent weeks. Investors were also told that NovaTech had never posted a weekly trading loss. Yet in reality, the firm appears to have only traded a fraction of the investor assets it held, and those suffered significant trading losses. In reality, the sole source of new revenue appears to have been other investors – a typical pyramid scheme.

Mr. & Mrs. Petion also misappropriated assets from the scheme. This included transferring millions of dollars of commingled investor assets to themselves. Those assets were also used to make payments to existing investors. In addition, the couple made a series of false and misleading statements about the use of investor capital. Those included claims that the trading was profitable, the company was a “registered hedge fund,” and the firm was safe and secure. The other Defendants were instrumental in promoting and marketing the scheme.

The scheme collapsed in May 2023 following a series of actions by several U.S. states and Canadian provinces against it. Most investors were unable to withdraw their funds. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and each subsection of 17(a) and Exchange Act Section 10(b). See Lit. Rel. No. 26072 (S.D. Fla. Filed August 12, 2024).