SEC Claims “Gifts for Donations” Offer was Sham
Offering frauds have long been a staple of the Commission’s enforcement division. These cases, which often target specific groups, also fit comfortably within the current “main street” investor focus of the division since the promoter often targeted small, unsophisticated investors. Many are built on “too good to be true tales” of virtually instant wealth from a no or little risk opportunity because of some unique situation, development or product. Seldom are they built on ‘gifts” or “donations.” Yet those two elements are the keys to the latest offering fraud case filed by the agency. SEC v. Crystal World Holdings, Inc., Civil Action No. 1:19-cv-02490 (D.D.C. Filed August 19, 2019).
Crystal, along with The New Sports Economy Institute and Christopher Paul Rabalais are named as defendants in the Commission’s complaint. Chrystal is a holding company that owns intellectual property related to the experimental sports marketplace website platform known as AllSportsMarket. The firm is based in Washington D.C. Its stated goal is to become a world-wide 24-hour exchange for sports trading instruments. The Institute is a non-profit with offices in Pasadena. It is seeking a royalty-free intellectual property licensing agreement with Crystal. Both firm firms were organized by Mr. Rabalais.
Over a five-year period, beginning in mid-July 2014 and continuing through April 2019, members Crystal and the Institute offered common and preferred shares of Crystal to the public in the United States, Canada, Europe and Australia. About $1.5 million was received from investors. The shares were offered using mailing lists, e-mail and a website.
The Crystal shares were offered as “gifts.” In return investors made “donations.” Investors were told that there were plans to register the Crystal shares with the SEC in the future. Once the shares became registered the price would increase. Accordingly, now is the time acquire them, according to the representations. The documents reciting this claim carried the SEC’s seal without authorization.
Defendants made a series of misrepresentations in connection with offering of the Crystal shares which included:
Registration “When I receive [your email confirmation], your shares will be recorded in the official stock database that will be used to register your shares. . .” with the SEC, the complaint states;
No transfers: “No transfers allowed at this point. That must happen after SEC registrations . . .” and
Preparations: “We’ve been carefully putting everything in order so that our company stock can be registered with the SEC early next year.”
These and other representations made by Defendants were false. No effort was ever made to register the shares with the SEC. Indeed, the “gift-donation model employed by Defendants presented a false appearance of fact regarding . . .” the Crystal shares, according to the complaint. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a)(2) and (3). The case is pending.