Showing posts with label UNREGISTERED SECURITIES. Show all posts
Showing posts with label UNREGISTERED SECURITIES. Show all posts

Thursday, June 5, 2014

BITCOM-RELATED WEBSITE OWNER CHARGED BY SEC WITH OFFERING UNREGISTERED SECURITIES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today charged the co-owner of two Bitcoin-related websites for publicly offering shares in the two ventures without registering them.

An SEC investigation found that Erik T. Voorhees published prospectuses on the Internet and actively solicited investors to buy shares in SatoshiDICE and FeedZeBirds.  But he failed to register the offerings with the SEC as required under the federal securities laws.  Investors paid for their shares using Bitcoin, a virtual currency that can be used to purchase real-world goods and services and exchanged for fiat currencies on certain online exchanges.  The profits ultimately earned by Voorhees through the unregistered offerings totaled more than $15,000.

Voorhees agreed to settle the SEC’s charges by paying full disgorgement of the $15,843.98 in profits plus a $35,000 penalty for a total of more than $50,000.

“All issuers selling securities to the public must comply with the registration provisions of the securities laws, including issuers who seek to raise funds using Bitcoin,” said Andrew J. Ceresney, director of the SEC’s Division of Enforcement.  “We will continue to focus on enforcing our rules and regulations as they apply to digital currencies.”

According to the SEC’s order instituting a settled administrative proceeding, the first unregistered offering occurred in May 2012 as 2,600 bitcoins were raised through the sale of 30,000 shares in FeedZeBirds, which promises to pay bitcoins to Twitter users who forward its sponsored text messages.  Then in two separate offerings from August 2012 to February 2013, SatoshiDICE sold 13 million shares and raised 50,600 bitcoins that were worth approximately $722,659 at the time.  SatoshiDICE, which calls itself the biggest Bitcoin-betting game in the world and pays out casino-like winnings in bitcoins, ultimately returned these offering proceeds to investors in a buy-back transaction in July 2013.  A significant rise in the exchange rate of U.S. dollars to bitcoins actually increased the amount paid back to investors to approximately $3.8 million for 45,500 bitcoins.

The SEC’s order finds that Voorhees actively solicited investors to buy FeedZeBirds and SatoshiDICE shares on a website dedicated to Bitcoin known as the Bitcoin Forum.  Voorhees also publicly promoted the unregistered offerings on other Bitcoin-related websites as well as Facebook.  The first unregistered offering was explicitly referred to as the “FeedZeBirds IPO.”  Despite these general solicitations, no registration statement was filed for the FeedZeBirds or SatoshiDICE offerings, and no exemption from registration was applicable to these transactions.

The SEC’s order finds that Voorhees violated Sections 5(a) and 5(c) of the Securities Act of 1933.  Voorhees consented to cease and desist from committing or causing any future violations of the registration provisions without admitting or denying the SEC’s findings.  In addition to the monetary sanctions, Voorhees agreed that he will not participate in any issuance of any security in an unregistered transaction in exchange for any virtual currency including Bitcoin for a period of five years.  The entry of the SEC’s order disqualifies Voorhees from relying on Rule 506(b) and 506(c) of Regulation D under the Securities Act, as defined in the bad actor disqualification provisions of Rule 506.

The SEC’s investigation was conducted by Daphna A. Waxman, Daphne P. Downes, and Philip R. Moustakis of the New York Regional Office.  The case was supervised by Valerie A. Szczepanik and Amelia A. Cottrell.

Thursday, November 22, 2012

SEC CHARGES MICHIGAN BUSINESSMAN DEFRAUDED INVESTORS IN REAL ESTATE INVESTMENT SCHEME

Photo Credit:  U.S. National Guard.
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission announced that it has obtained an emergency court order against a Bay City, Michigan-based real estate promoter, and that it has suspended trading in one of the promoter's companies, American Realty Funds Corporation.

According to the SEC's complaint, Joel I. Wilson defrauded investors who bought unregistered securities offered by his company, Diversified Group Partnership Management, LLC, and sold through his brokerage firm, W R Rice Financial Services, Inc. Wilson raised approximately $6.7 million from approximately 120 investors who bought Diversified Group's securities from September 2009 through October 2012, and used the funds to finance his business of buying, renovating, and selling houses in and around Bay City, the SEC alleged.

Although Wilson promised investors that he would invest their money in real estate that would yield returns of 9.9% per year, he used most of it to make unsecured loans to his real estate business, which did not generate enough income to repay the investors. Wilson also diverted $582,000 of investor money to pay personal expenses, including $75,000 he used to buy W R Rice Financial, $46,780 he spent on travel, and $35,000 for his wife's business. In addition, the SEC said Wilson used investors' money to pay for a sponsorship and tickets to the Saginaw Sting football team and to buy thousands of dollars worth of tickets to the Detroit Red Wings.

The SEC alleges that Wilson raised additional funds for his real estate business through stock sales for another of his companies, American Realty Funds Corporation, which trades on the OTC Bulletin Board under the symbol ANFDE. The complaint alleges that there were misrepresentations and omissions in some of the reports the company filed with the SEC, which Wilson signed, including that American Realty has failed to make loan payments and that its purportedly independent directors have undisclosed personal and business relationships with Wilson. American Realty is delinquent in filing its annual report on Form 10-K for the fiscal year ended June 30, 2012, which was due October 15, and its quarterly report on Form 10-Q for the quarter ended September 30, which was due on November 14. Because of the questions concerning the accuracy of publicly disseminated information in the company's public filings and financial statements, the SEC issued an administrative order
suspending trading in American Realty stock until 11:59 p.m. EDT on November 29, 2012.

The SEC's complaint, filed on November 15, 2012 in the U.S. District Court for the Eastern District of Michigan, charges Wilson and Diversified Group with violations of the registration and antifraud provisions of the federal securities laws and American Realty with violations of the antifraud and reporting provisions of the federal securities laws. The Court granted the SEC's request for an order prohibiting the defendants from altering or destroying documents and an order granting the parties leave to conduct expedited discovery. The Court scheduled a hearing on the SEC's motions for an asset freeze and preliminary injunction for December 10, 2012, at 10:00 a.m. at the U.S. District courthouse located at 1000 Washington Ave. in Bay City, Michigan.

Saturday, August 18, 2012

SEC CHARGES OWNER OF WEBSITE ZEEKREWARDS.COM WITH RUNNING A $600 MILLION PONZI SCHEME

THE SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C., Aug. 17, 2012
– The Securities and Exchange Commission today announced fraud charges and an emergency asset freeze to halt a $600 million Ponzi scheme on the verge of collapse. The emergency action assures that victims can recoup more of their money and potentially avoid devastating losses.
 
The SEC alleges that online marketer Paul Burks of Lexington, N.C. and his company Rex Venture Group have raised money from more than one million Internet customers nationwide and overseas through the website ZeekRewards.com, which they began in January 2011.
 
According to the SEC’s complaint filed in federal court in Charlotte, N.C., customers were offered several ways to earn money through the ZeekRewards program, two of which involved purchasing securities in the form of investment contracts. These securities offerings were not registered with the SEC as required under the federal securities laws.
 
The SEC alleges that investors were collectively promised up to 50 percent of the company’s daily net profits through a profit sharing system in which they accumulate rewards points that they can use for cash payouts. However, the website fraudulently conveyed the false impression that the company was extremely profitable when, in fact, the payouts to investors bore no relation to the company’s net profits. Most of ZeekRewards’ total revenues and the "net profits" paid to investors have been comprised of funds received from new investors in classic Ponzi scheme fashion.
 
"The obligations to investors drastically exceed the company’s cash on hand, which is why we need to step in quickly, salvage whatever funds remain and ensure an orderly and fair payout to investors," said Stephen Cohen, an Associate Director in the SEC’s Division of Enforcement. "ZeekRewards misused the power of the Internet and lured investors by making them believe they were getting an opportunity to cash in on the next big thing. In reality, their cash was just going to the earlier investor."
 
The SEC’s complaint alleges that the scheme is teetering on collapse with investor funds at risk of dissipation without its emergency enforcement action. Last month, ZeekRewards brought in approximately $162 million while total investor cash payouts were approximately $160 million. If customers continue to increasingly elect to receive cash payouts rather than reinvesting their money to reach higher levels of rewards points, ZeekRewards’ cash outflows would eventually exceed its total revenue.
 
Burks has agreed to settle the SEC’s charges against him without admitting or denying the allegations, and agreed to cooperate with a court-appointed receiver.
 
According to the SEC’s complaint, ZeekRewards has paid out nearly $375 million to investors to date and holds approximately $225 million in investor funds in 15 foreign and domestic financial institutions. Those funds will be frozen under the emergency asset freeze granted by the court at the SEC’s request. Meanwhile, Burks has personally siphoned several million dollars of investors’ funds while operating Rex Venture and ZeekRewards, and he distributed at least $1 million to family members. Burks has agreed to relinquish his interest in the company and its assets plus pay a $4 million penalty. Additionally, the court has appointed a receiver to collect, marshal, manage and distribute remaining assets for return to harmed investors.
 
The SEC’s investigation was conducted by Brian M. Privor and Alfred C. Tierney in the SEC’s Enforcement Division in Washington D.C. The SEC acknowledges the assistance of the Quebec Autorite des Marches Financiers and the Ontario Securities Commission.

Sunday, March 11, 2012

SEC FILES ACTION AGAINST PRIME STAR GROUP, INC. FOR VIOLATIONS

The following excerpt is from the Securities and Exchange Commission website:

“Securities and Exchange Commission v. Prime Star Group, Inc., et al., Civil Action No. 2:12-cv-00371 (D. Nev.) (March 7, 2012)
The Securities and Exchange Commission filed a civil action in the United States District Court for the District of Nevada against Prime Star Group, Inc. and its chief executive officer Roger Mohlman of Las Vegas, Nevada, for violations of antifraud, registration, reporting, and books and records provisions, and against Danny Colon and Marysol Morera of Edgewater, New Jersey, Felix Rivera of Clifton, New Jersey, New Jersey limited liability company DC International Consulting LLC, Kevin Carson of Lake Worth, Florida, Esper Gullatt, Jr. of Aurora, Colorado, Minnesota corporation The Stone Financial Group, Inc., and Joshua Konigsberg of Palm Beach Gardens, Florida for registration violations.

According to the SEC’s complaint, Prime Star illegally distributed more than 18 million purportedly unrestricted Rule 144 shares pursuant to backdated consulting agreements or forged attorney opinion letters. The SEC alleges that in furtherance of a pump and dump scheme, Prime Star and Mohlman issued the shares to consultants Colon, Morera, Rivera, DC International Consulting LLC, Carson, The Stone Financial Group, Inc., and Konigsberg who liquidated Prime Star stock and either kept a portion of the sales proceeds or forwarded proceeds to promoters to tout Prime Star. The SEC’s complaint also alleges that Prime Star and Mohlman made false and misleading statements in Prime Star’s SEC filings and in various press releases during the relevant time period.
The SEC alleges that Prime Star and Mohlman violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and that Prime Star violated Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. The complaint further alleges that Mohlman violated Section 13(b)(5) of the Exchange Act and Rules 13a-14, 13b2-1 and 13b2-2 thereunder and aided and abetted Prime Star’s violations of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5(b), 12b-20, 13a-1 and 13a-13 thereunder. The SEC also alleges Section 5(a) and 5(c) violations against Colon, Morera, Rivera, DC International Consulting LLC, Carson, Gullatt, The Stone Financial Group, Inc., and Konigsberg.

Without admitting or denying the allegations in the Commission’s complaint, and subject to court approval, Konigsberg has consented to the entry of a judgment that would enjoin him from future violations of Sections 5(a) and 5(c) of the Securities Act.

Separately, the Commission today issued an Order Instituting Administrative Proceedings and Notice of Hearing Pursuant to Section 12(j) of the Securities Exchange Act of 1934 against Prime Star, to determine whether the registration of each class of its securities should be revoked or suspended for a period not exceeding twelve months based on its failure to file required periodic reports. The Division of Enforcement alleges that Prime Star has failed to comply with Exchange Act Section 13(a) and Rules 13a-1 and 13a-13 thereunder by failing to file periodic reports required by these provisions. A hearing will be scheduled before an Administrative Law Judge to determine whether the allegations of the Division contained in the Order are true, and to provide Prime Star an opportunity to respond to these allegations."

Sunday, February 19, 2012

SEC CHARGED TWO FOREIGN COMPANIES WITH SELLING UNREGISTERED PROMISSORY NOTES


The following excerpt is from the SEC website:

February 15, 2012

"SEC Charges Venulum with Registration Violations in Connection with Offerings of Wine Contracts and Promissory Notes

"The Securities and Exchange Commission today charged two non-U.S. companies — Venulum Ltd. (a British Virgin Islands company) and Venulum Inc. (a Canadian company) — and their owner and chairman Giles Cadman (a resident of the United Kingdom), with registration violations in connection with unregistered offers and sales of promissory notes and interests in fine wines. The Commission’s suit, filed in Dallas federal court, alleges that, beginning in 2002, Venulum made unsolicited calls to American investors, primarily dentists, to solicit investments in interests in trading in fine wines to be managed by Venulum. Venulum’s solicitation highlighted its purported expertise in selecting, sourcing, storing and marketing fine wines for the benefit of investors. Then, starting in 2010, Venulum solicited 94 of its wine investors to purchase high-interest promissory notes. Neither of the offerings was registered with the Commission.

Without admitting or denying the Commission’s allegations, the defendants consented to permanent injunctions against violating Sections 5(a) and 5(c) of the Securities Act of 1933. The injunction is subject to court approval.

The Commission acknowledges the assistance of the Texas State Securities Board."

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