SEC Resolves Two Fraud Cases
The Commission announced the resolution of two fraud cases this week. Once centered on fraud claims tied to a real estate crowd funding portal. SEC v. Skelley, Civil Action No. 18-cv-8803 (S.D.N.Y. Settled March 26, 2021). The second focused on the assistance rendered to fraudsters by an attorney. SEC v. Shkreli, Civil Action No. 15-cv-7175 (E.D.N.Y. Settled April 5, 2021).
Skelley is an action which names as defendants William Skelley and Sohin Shah. Defendants co-founded Innovational Funding LLC in 2012. The next year the firm launched an on-line real estate portal. Investors were solicited using PPMs which claimed that they could become equity or debt holders in real estate projects across the U.S. The solicitations took place from October 2013 through June 2016. Investors were told their funds would be used to build the business. About $3.39 million was raised from 47 investors in 17 states. Investors were required to be accredited. Beginning in December 2015 Defendants also issued to five investors promissory notes convertible to capital or common stock. The notes were issued in the principal amount of $187,5000 with a 2% rate. In fact, Defendants misappropriated over $1.1 million of the investor funds. The complaint alleged violations of each subsection of Securities Act section 17(a) and Exchange Act sections 10(b) and 20(a).
The action was resolved as to Mr. Skelley when he failed to respond and the Court entered judgment. Subsequently, on March 26, 2021 the Court entered a permanent injunction against Mr. Skelley based on Securities Act Section 17(a) and Exchange Act Section 10(b). The Court also directed that Mr. Skelley pay disgorgement of $1,073,746.65, prejudgment interest of $184655.27 and a penalty equal to the amount of the disgorgement. See Lit. Rel. No. 25066 (April 7, 2021).
The settlement in Shkreli involved attorney Evan Greebel, former counsel to Retrophin, Inc., a publicly traded pharmaceutical company founded by Martin Shkreli who was sentenced to serve seven years in prison after being convicted on fraud charges tied largely to his conduct concerning two hedge funds. See U.S. v. Shkreli, No. 15-cv-07175 (S.D.N.Y.). The Commission’s action here centered on the period 2013 and early 2014 when Mr. Shkreil orchestrated a fraud involving the pharmaceutical firm and his hedge funds. Specifically, Mr. Shkreli induced investors from his hedge funds to enter into agreements with the company of which he was CEO stating that certain payments they received from the company were for consulting services. In fact the payments were for the release of potential claims against Mr. Shkreli. Mr. Greebel is alleged to have aided the scheme.
To resolve the matter with the Commission Mr. Greebel consented to, and the Court entered, permanent injunctions based on Exchange Act Section 10(b). Mr. Greebel was also barred from serving as an officer or director of a public company. No monetary relief was ordered in view of the penalties imposed in the related criminal action. See Lit. Rel. No. 25065 (April 6, 2021).