by T. GormanPosted on Posted in SECActions

     

Investment advisers owe their clients a fiduciary duty, one of the highest obligations under the law. The obligation fits well with the duties and responsibilities of the typical advisor and advisory. The obligations are those of a trusted adviser. They include giving proper investment advise to clients, often having custody of the client assets and, in sum, rendering the best investment advice possible to the client. Unfortunately, in some instances the advice rendered is not the best for the client but for the adviser. The Commission’s most recent case in this area clearly illustrates the point, SEC v. Goltry, Civil Action No. 3:24-cv-06976 (D. N.J. Filed June 12, 2024).

Named as defendants in this action are: Joshua Goltry and JAG Capital Advisors, LLC. Mr. Goltry is the founder and investment manager of JAG Capital. The principal place of business of the firm was Miramar, Florida; JAG is a Florida limited liability company. It purported to be a long/short equity fund and pooled investment vehicle. The firm invested in e-commerce, software, cybersecurity, semiconductor, fintech, gaming and alternative energy industries.

Over a three-year period, beginning in 2020 Defendants raised at least $3 million from about nine investors. In doing so, Defendants “lied about nearly every aspect of JAG Fund’s operations, including its performance, investment activity and its risk protocols,” according to the complaint..

Defendants lost over $1.7 million of the investor funds through high-risk trading and speculative investments made with investor capital. Defendants also misappropriated over $1.1 million of the investor funds, diverting them to personal use. And, Defendants concealed the losses from the fund administrator, as well as the clients, by falsely inflating the value of other assets. By August 2023 the Fund was depleted; now it is defunct. 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(3).

Defendants agreed to settle the action, consenting to the entry of permanent injunctions based on the Sections cited in the complaint. The court will determine monetary penalties at a later date. The U.S. Attorney’s Office for the District of New Jersey announced criminal charges against Mr. Goltry. See Lit. Rel. No. 26028 (June 14, 2024).

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by T. GormanPosted on Posted in SECActions

Offering fraud actions typically center on the proposed sale of securities tied to a fraud. The type of fraud varies from cases to case. Typically, however, there is an issuer and there are securities, although neither may have much value. The Commission’s most recent action in this area differs perhaps only by degree – it centers on an offer which was a complete sham. SEC v. Brown, Civil Action No. 4:24-cv-00558 (N.D. Tx. Filed June 17, 2024).

Named as defendants in the action are: Matthew Brown and Mathew Brown Companies, LLC. Mr. Brown is believed to reside in the Dallas-Fort Worth area, although it is not clear. Defendant Matthew Brown Companies is a Delaware limited liability company based in Fort Worth, that was created in April 2020 and operated by Defendant Matthew Brown.

This action centers on Virgin Group which spun off newly formed Virgin Orbit from Virgin Galactic Holdings, Inc. (“Virgin Galactic”) in 2017. The former was involved primarily with space tourism services. The latter provided commercial satellite launch services. Virgin Orbit began trading publicly on the Nasdaq after it the spinoff.

In March 2023 Mr. Brown sent an unsolicited message to Virgin Orbit executives. It offered to invest $200 million in Virgin Orbit. At the time Virgin Orbit was on the verge of bankruptcy. Defendant Brown offered a series of statements regarding his investment experience and personal financial situation. For example, he claimed to have invested “hundreds of millions of dollars” of his “personal capital” primarily in space companies. He also sent the executives what appeared to be a screen shot of his personal bank account showing a balance of over $182 million. The claims were false; the bank account balance was less than $1.

The media began publishing the claims. The share price for Virgin Orbit rose over 30%; Mr. Brown was asked to, and did, appear on CNBC. During his appearance Mr. Brown discussed his so-called investment experience and over 13 space companies as well as the legitimacy of his $200 million offer. Subsequently, Defendant Brown demanded a “break-up fee” from Virgin Orbit when the firm made inquiries. The deal never moved forward. The complaint alleges violations of Exchange Act Section 10(b). The case is in litigation. See Lit. Rel. No. 26031 (June 17, 2024).

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