Retail Investors and the SEC

The Commission has repeatedly emphasized the main street, retail investor focus of its Enforcement Division in recent months. Earlier this week, for example, Chairman Clayton discussed the point as he gave a first ever interview from inside the Commission’s Washington headquarters and its its super safe, copper lined data room. As if to underscore the point, this week the agency has brought three new cases involving offering fraud – the kind of cases in which retail investors are often fleeced. The cases involve digital assets, nanotechnology and real estate.

ICO offering fraud: SEC v. Eyal, Civil Action No. 1:19-cv-11325 (S.D.N.Y. Filed Dec. 11, 2019) names as defendants Eran Eyal, a dual citizen of South Africa and Israel residing in Brooklyn, and his firm, Uniteddata, Inc, d/b/a “Shopin.” Over a period of about eight months, beginning in August 2017, Defendants raised about $42.5 million in digital assets. Shopin supposedly planned to create a universal shopper profile that would track customer shopping histories at online retailers that would recommend purchases. The offering, conducted in typical two stage IPO fashion using a pre-sale and a sale, was based on a series of misrepresentations. Those included claims that two successful tests of Shopin’s approach had been conducted, a claim that the firm had on-going partnerships with well-known retailers, a representation that a prominent Silicon Valley blockchain entrepreneur advised the firm and a suggestion that a successful online company had invested in the firm. Shopin never created a functional platform. The proceeds from the offering were diverted to the personal use of Mr. Eyal. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b). The case is pending.

Offering fraud/nanotechnology: SEC v. Nanotech Engineering, Inc., Civil Action No. 1:19-cv-03633 (D.D.C. Filed Dec. 5, 2019) names as defendants the firm, Michael Sweaney, David Sweaney and Jeffery Gange. Defendants are, respectively, a firm claimed to be developing a revolutionary solar panel, CFO Michael Sweaney, a convicted securities fraudster, CEO and nephew David Sweaney and COO Jeffery Gange. The complaint centers on the sale of private placement shares under a Reg. D notice, beginning about two years ago and which is on-going. During that period, Defendants have raised about $9.4 million from investors using a series of false representation. Those include the failure to disclose Michael Sweaney’s prior criminal conviction, a claim that Defendants would receive little of the investor cash raised and a representation about commissions. In fact, Defendants used boiler room tactics and others employing that approach to solicit investors. Portions of the investor funds were diverted to the personal use of defendant. The complaint alleges an on-going fraud and violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The Commission obtained an asset freeze on filing. See Lit. Rel. No. 24688 (Dec. 11, 2019).

Offering fraud/real estate: SEC v. Palm Beach Atlantic Financial Group, LLC, Civil Action No. 9:19-cv-81652 (S.D. Fla. Filed Dec. 11, 2019) is an action which names as defendants the firm and William Smith, respectively, a manager and seller of real estate and the firm’s managing member. Over a three-year period, beginning in 2014, Defendant raised over $1 million from investors who were told that Palm Beach Atlantic was in the business of buying, remodeling and selling real estate. In fact, the funds raised were comingled with those from other ventures and used for a variety of purposes. Mr. Smith typically moved the funds through a number of accounts to support his various ventures. Defendants also falsely claimed to have a successful track record in the business. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b). To resolve the matter each defendant consented to the entry of a permanent injunction based on the sections cited in the complaint. Defendants will also pay, on a joint and several basis, a penalty of $75,000. See Lit. Rel. No. 24689 (Dec. 11, 2019).