The SEC sued an individual and his investment firm for their roles in defrauding investors through the selling of securities in a California real estate investment and management company ("company").
In the Complaint filed in the U.S. District Court, Northern District of California, San Francisco Division, the SEC alleges that the individual and the investment firm garnered about $400,000 in referral fees from the company by "soliciting and recommending [the company's] investments to their advisory clients." The SEC charged that the defendants failed to disclose this compensation, which constituted about 40 percent of the investment firm's revenue in 2019 and 2020, to their clients. The individual and the investment firm also allegedly failed to disclose the past criminal conviction of the company's founder. Further, the SEC alleges that neither the individual nor the investment firm were registered as a broker dealer with the SEC or associated with a broker dealer when they offered and sold the company's securities.
As a result, the SEC found that the individual and the investment firm violated Sections 5(a) ("Sale or delivery after sale of unregistered securities"), and 5(c) ("Necessity of filing registration statement") of the Securities Act, Section 15(a)(1) ("Registration of all persons utilizing exchange facilities to effect transactions; exemptions") of the Exchange Act, and Sections 206(1) and 206(2) ("Prohibited transactions by investment advisers"), and 207 ("Material Misstatements") of the Advisers Act.
The SEC seeks from the individual and the investment firm (i) a permanent enjoinment from direct or indirect violations of the above sections of the Adviser's Act, the Securities Act, and the Exchange Act, (ii) disgorgement of all ill-gotten gains or unjust enrichment stemming from the activities alleged in the complaint along with prejudgment interest, and (iii) payment of civil monetary penalties.