SEC Partially Settles Offering Fraud Action

The partial Government shutdown continues. No apparent resolution is in sight, a huge issue for the thousands of hard-working federal employees who will not get paid. Nevertheless, the SEC continues with a minimal staff as have other agencies. That staff is continuing to move cases in litigation forward since the federal courts remain in operation for now.

Those efforts by unpaid staff are yielding results. At least one enforcement action was partially settled. SEC v. American Growth Funding II, LLC, Civil Action No. 16-cv-00828 (S.D.N.Y.). This previously filed action named as defendants: American Growth; Portfolio Advisors Alliance, Inc., a registered broker dealer; Ralph Johnson, the managing member of the AGF entities; Howard Allen III, a registered representative and an indirect owner of PAA; and Kerri Wasserman, President of PAA. The complaint alleges that American Growth, which supposedly provides loans to businesses, raised about $8.6 million from 85 investors through the sale of its units under a private placement memo from early 2011 through the end of 2013 based on a series of misrepresentations. During the period the primary asset of American Growth was a loan from an affiliate that had greatly deteriorated in value and for which the likelihood of repayment was imperiled. Nevertheless, investors were promised 12% returns. The complaint alleges violations of Exchange Act Section 10(b) and each subsection of Securities Act Section 17(a).

On January 4, 2018 Judge Kimba Wood held a settlement conference in anticipation of the start of trial on January 7. The company and Mr. Johnson agreed to settle. Although the terms were not disclosed, and no papers were filed with the Court, Judge Wood continued the trial as to the remaining defendants. Presumably the settlement papers will be filed shortly.