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SEC Halts Offering Fraud Targeting American Indians

SEC Halts Offering Fraud Targeting American Indians

T. GormanPosted on October 19, 2023 Posted in SECActions

Offering frauds are perhaps the most common type of enforcement action. They come in all shapes and sizes, ranging from selling hard to get tickets to Broadway plays to little know technologies that are supposed to perform all sorts of things that ultimately provide investors whatever they are looking to acquire. While some are as simple as a person making a pitch to sell some new product, others are sophisticated with forged documents and other items, all of which are designed to lure the investor in to parting with his or her hard earned cash. The SEC’s latest action in this area is one that raised about $130 million and targeted the Indian American community, SEC v. Krishnan, Civil Action No. 4:23-cv-00885 (E.D. Tx. Filed October 5, 2023).

The action names as defendants: Gopala Krishnan, Manivannan Shanmugam, Sakthivel Palani Gounder, Nanban Ventures LLC, GSM Eternal LLC, Himalayan Fintech LLC, and Centum Fintech LLC. Defendants Krishnan, Shanmugam and Gounder are known as the Founders. Through their controlled “Nanban” companies they are alleged to have raised funds from over 360 investors by targeting the Indian community in the DFW area. To maintain their enterprise, Defendants have falsified their claimed profitability and made Ponzi type payments.

The sales pitch in part revolved around a claim that the investor funds would be invested using “GK Strategies, named after Defendant Krishnan who goes by “GK.” This is supposedly an options trading method that never loses money and outperforms the market. Defendants used misrepresentations about the approach to enhance its attractiveness to investors.

Investors were also told that their money would be used to invest in start-up technology companies and real estate. Defendant Nanban Ventures then provided investors with what was represented to be a statement of investments. The documents represented that most of the fund asserts were put into three “fintech” companies — those that use technology to improve financial services. The so-called “fintech” companies were actually Nanban entities controlled by the Founders.

In fact, much of the investor money was not invested in fintech business. To the contrary, it was put into unsecured promissory notes issued by the related-party Founder Companies – those controlled by the Founders which have little or no assets.

Finally, Nanban Ventures and the Founders acted as investment advisers to the fund at times. In this role they breached their fiduciary duty by putting the interest of the Founders and the funds before those of the investors as a result of undisclosed conflicts, missing assets and excessive compensation. The complaint alleges violations of Securities Act Section 17(a), Exchange Act Section 10(b), And Advisers Act Sections 206(1), 206(3), 206(3) and 206(4). The case is in litigation.

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Prepared:

Thomas O. Gorman

DC Attorney specializing in securities
and other agency litigation

Former SEC Senior Counsel, Enforcement
and Special Trial Counsel, GC Office
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