SEC Settles Offering Fraud Tied to Cellphone App
The focus of SEC enforcement has not changed under a new Chairman if recent cases are any indication – at least for now. For example, offering fraud actions have been a key focus of Enforcement for years. This week is no different. Yesterday the Commission filed a settled offering fraud action against a San Diego business man centered on claims regarding a cellphone app which supposedly could be used to transfer money. SEC v. Giunti, Civil Action No. 3:17-cv-01504 (S.D. Cal. Filed July 25, 2017).
Defendant John Giunti worked in the television broadcasting business at one time. Through this employment he gained experience with securities offerings. He also developed relationships with investors. After the business was liquidated he remained in contact with the investors.
Subsequently, he formed Defendant Interactive Media Solutions, LLC. Mr. Giunti was the sole principal of the firm which operated from his home. The firm claimed to have an app that could send money from any cellphone in the United States to any bank or be used for paying bills.
For a little over one year, beginning in mid-2015, Mr. Giunti offered investors from his prior work and others interests in the firm. Interactive Media was portrayed as a successful start-up to investors from which they could profit.
Following the initial investor contacts the firm issued an Update on its business. That Update stated that Interactive Media was planning an IPO and needed to hire personnel and incur legal expenses. Mr. Giunti planned to conduct an IPO and raise $5 million. To keep moving forward the start-up had to secure the necessary financial resources, the requirements of which exceeded current cash flow. Investors were asked to consider increasing their investment. In making this request investors were told that the firm had positive cash-flow, that the investor funds would be used for the business, that Interactive Media had offices at Google on the Westside of Los Angeles where the firm’s team was hard at work and that Mr. Giunti had an MBA from Columbia.
By December 2015 Mr. Giunti was making another pitch to investors. Again the offering document represented that the firm was proceeding but that to expedite progress additional cash was needed. This pitch was supplemented with telephone calls to investors. Overall 24 investors put almost $500,000 into the firm.
The representations made to investors were false. There is no evidence that the firm actually had any app or any product. The firm did not have positive cash flow, offices at Google or a team working on a product; Mr. Giunti did not have a masters degree from Columbia University. Much of the investor money was diverted to the personal expenses of Mr. Giunti. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b).
To resolve the action Defendants each consented to the entry of a permanent injunction based on the Sections cited in the complaint. Disgorgement in the amount of $457,960, along with prejudgment interest, will be paid on a joint and several basis by the Defendants. In addition, Mr. Giunti will pay a penalty in the amount of the disgorgement and is barred from serving as an officer or director of a public company and from raising money from investors in any securities offerings. See Lit. Rel. No. 23887 (July 26, 2017).