by T. GormanPosted on Posted in SECActions

The retail investor focus of SEC Enforcement continued this week. First there was an action based on a microcap fraud. Then a case involving the so-called “blockchain evangelist” and crypto currency fraud and then a touting proceeding involving a microcap stock. The most recent case by the agency centers on a registered representative who used his long established client relationships to create a mini-Ponzi scheme, fleecing those who trusted him while lining his own pockets at their expense. SEC v. Pagartanis, Civil Action No. 2:18-cv-03250 (E.D.N.Y. Filed May 30, 2018).

Defendant Steven Pagartanis has been a registered representative at various Commission registered broker-dealers for almost thirty years. Recently he has been associated with Lombard Securities, Inc. at its Setauket, New York branch office. Over the years the registered representative developed relationships of trust and confidence with his clients. The complaint does not indicate that Mr. Pagartanis has had any regulatory violations over the years.

Over a five year period beginning in 2013, Mr. Pagartanis solicited and obtained a total of $8 million from nine retail investors who were long standing clients. Some investors were told that the investment was to acquire common stock of Genesis Land Development Company. That firm was supposedly a Canadian land development home building company whose shares were listed on the TSX. Others were told that their funds were for an investment in a land development company. Investors were told that they would receive returns of 4.5% to 8% annually. Some investors were told the investment was similar to a bond fund or a fixed income fund.

The investments were paid with checks made payable to Genesis. That is the same name as the Canadian development firm. It is also the name of Genesis I Holdings, LLC, a limited liability company based in East Setauket, New York. Mr. Pagartanis is the sole principal and owner of the firm.

None of the investor money was ever invested, according to the complaint. To the contrary, Defendant transferred the investor capital to his personal bank account. About $1.8 million was used to make monthly payments back to the investors. Mr. Pagartanis also made withdrawals from the Genesis bank account.

In early 2018 Defendant stopped making payments to the investors. Requests to reinstitute the payments or for a return of the investment were ignored. By March 2018 Lombard’s compliance staff had received investor complaints and requested that Mr. Pagartanis speak with them. The request was ignored. He also ignored request for an interview from FINRA made the same month. In April 2018 the regulator barred him from associating with any FINRA member. The Commission’s complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is pending.

The Suffolk County District Attorney’s Office filed criminal charges against Mr. Pagartanis.

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by T. GormanPosted on Posted in SECActions

All things virtual currency or crypto continue to draw significant investor interest. The SEC’s most recent case in this area combines many of the elements of earlier actions as well as those on the “Howeycoin” website recently created by the agency to warn investors – an ICO, white papers, relationships with well known companies and even the Federal Reserve, endorsements and intellectual property. None of it was true. Nevertheless, $21 million in investor cash was raised in a few weeks in the U.S. and abroad. SEC v. Titanium Blockchain Infrastructure Services, Civil Action No. CV18-4315 (C.D. Cal. Unsealed May 29, 2018).

Named as defendants are two firms and the owner, Michael Stollery. The firms are Titanium Blockchain Infrastructure Services, Inc. or TBIS and EHI Internetwork and Systems Management, Inc. or EHI.

By late October 2017 Defendant Stollery, calling himself the “blockchain evangelist,” was using social media to tout The Titanium BAR Token for an ICO to commence in January 2018. The idea was to essentially “crowdfund” and raise money to create products and services for the TBSI platform.

As a precursor to the ICO a pre-sale campaign was launched. On November 24, 2017, for example, a “special offer” was made under which TBIS was waiving the minimum purchase amount of $5,000 and allowing BAR purchases in any amount, although supplies were limited. The next day Mr. Stollaire tweeted that over $100,000 had been raised in less than 24 hours.

One distinguishing feature of this offering was supposed to be that the funds were going to develop an IT platform. Investors would share in TBIS’ future earnings and in the appreciation of the BAR digital assets. Investing in the BAR was comparable to buying Google stock at a very early stage in the history of that firm, according to Mr. Stollery.

The White Papers for the ICO – there were several versions – stated that the supply of BAR would be 60 million digital assets. Funds raised by the company – somewhere between $1 million and $35 million – would be pooled and used to develop the platform. A key to future success which supposedly distinguished the offering here were the relationships of TBIS’s sister company which would be leveraged to bring success. A list 25 firms was included in the White Papers. The firms identified were all well known and included Apple, General Electric, Pfizer and The Federal Reserve. Logos for a number of the firms were depicted.

The claims regarding these firms were bolstered by testimonials listed on the website. The representations about the relationships with the firms were false. By February 2018 Mr. Stollaire began receiving cease and desist letters from the companies cited. The claimed testimonials were false.

The White Papers, and other marketing materials, also claimed that the firm owned intellectual property. Detailed descriptions of the trademarked property were furnished with the symbol TM. None of the trademarks belonged to the defendants. Indeed, none of the claimed trademarks has an application pending with the U.S. Patent and Trademark Office with one exception.

Shortly after the completion of the ICO, TBIS announced that 16 million BAR digital assets had been “taken” from TBIS digital wallets – an “illegal theft.” TBIS then created a second digital asset called TBAR to replace the original BAR on a 1:1 ratio.

By late April 2018 Defendants shifted to trading. They announced the retention of a person who would promote TBIS as one of the world’s “largest crypto markets.” In May 2018 TBIS noted that they expected TBAR to be listed on a “well known exchange soon.” The assets were never registered with the SEC.

The complaint alleges violations of Securities Act Sections 5(a), 5(c) and each subsection of 17(a) and Exchange Act Section 10(b). The court granted a freeze order and appointed a receiver for the firms at the time the complaint was unsealed.

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