SEC Files Crowdfunding Action
Crowdfunding was a key part of the 2012 JOBS Act, passed under President Obama. The idea was to facilitate raising small amounts of capital for start-up operations. One of the key concerns with the Act has been ensuring that there is adequate disclosure and preventing fraud. To date the Commission has brought few enforcement actions involving the crowd funding portals.
Earlier this week, however, the agency filed an enforcement action centered on the operation of a portal that supposedly was tied to hemp. Unfortunately, the facility seemed to operate in the same fashion as many offering fraud cases. SEC v. Shumake, Civil Action No. 2:21-cv-12193 (E.D. Mich. Filed September 20, 2021).
Named as defendants in the action are: Truecrowd, Inc. dba Fundanna, a Commission registered portal, based in Chicago which hosted crowdfunding offerings for Transatlantic Real Estate and 420 Real Estate — a real estate entity that focused on hemp properties; Vincent Petrescu, a CPA and the founder and CEO of Truecrowd; Robert Shumake, a convicted felon who violated the terms of his probation by participating in this venture; Willard Jackson; and Nicole Birch, an attorney.
Mr. Shumake was the moving force behind the two Truecrowd offerings on which this case is based. Transatlantic and 420 Real Estate raised funds through the offering portal. Defendant Petrescu was responsible for selecting which issuers could use the platform to conduct offerings. Accordingly, under the applicable regulations he served as the gatekeeper for the offerings.
Defendants Shumake, Birch and Jackson sold the securities of the entity defendants through the portal. Defendants Shumake and Birch sold shares Transatlantic from September 2018 through May 2019. Defendants Shumake and Jackson sold the securities of 420 Real Estate through the portal from May 2019 through June 2020.
Investors for each of the offerings were assured that the investments would provide substantial profits tied to the cannabis industry. The profits would flow from acquiring real estate and leasing it to firms engaged in the cannabis industry.
Unfortunately for investors, the sale pitch was false. Mr. Shumake’s criminal record was not disclosed. While the funds were supposed to be dedicated to acquiring real estate to lease to the cannabis industry, the claim was not true. Rather, much of the investor money was diverted to the personal use of Defendants. The complaint alleges violations of Securities Act Sections 4A(a)(5), 5(a), 5(c) and 17(a) and Exchange Act Section 10(b). The case is pending.