SEC charges $410+ million Ponzi scheme with pre-IPO shares

Rick Steves

We allege that the defendants deceived investors about the pre-IPO shares they held, how much they were charging in fees, and who was controlling the business—all while paying themselves more than $75 million.

The Securities and Exchange Commission has obtained asset freezes and other emergency relief against StraightPath Venture Partners LLC, StraightPath Management LLC and individual defendants Brian K. Martinsen, Michael A. Castillero, Francine A. Lanaia, and Eric D. Lachow to halt ongoing securities violations.

The SEC alleges the defendants were selling pre-initial public offering (IPO) shares they did not own, pocketing undisclosed fees, and commingling investor funds, resulting in Ponzi scheme-like payments.

Unregistered broker-dealer raised $410m from 2,200 investors

Defendants were charged with fraud for allegedly running an unregistered broker-dealer with a vast network of sales agents, and raising at least $410 million from more than 2,200 investors from November 2017 through February 2022.

Investors were allegedly told that each investment would be kept separate and that they were not be charged upfront fees. Defendants, however, freely commingled investor funds, paid themselves more than $75 million, and paid their sales agents nearly $48 million from illegal, undisclosed markups on the pre-IPO shares that were, in some cases, as high as 100 percent, according to the securities regulator.

The financial watchdog also told the court there is a share deficit of at least $14 million across the funds and that two of the three founders, Castillero and Lanaia, ran the funds despite being barred from the brokerage industry.

“We allege that the defendants deceived investors about the pre-IPO shares they held, how much they were charging in fees, and who was controlling the business—all while paying themselves more than $75 million. We filed this emergency action to stop the ongoing fraud and to preserve assets for investors”, said Lara S. Mehraban, Acting Director of the New York Regional Office.

SEC freezes assets on a $449m Ponzi fraud

Last month, the SEC charged several Las Vegas-area individuals and companies allegedly behind a $449 million Ponzi scheme. The regulator also obtained an asset freeze against the defendants who allegedly duped hundreds of investors in a fraud involving purported personal injury settlements.

According to the complaint, attorney Matthew Beasley and cohorts Jeffrey Judd and Christopher Humphries told hundreds of investors that they would earn 12.5 percent quarterly returns by making risk-free investments in J&J Consulting Services.

But according to the complaint, none of the $449 million raised from investors over a five-year period was used for this purpose. Instead, they used investor money to purchase luxury homes, cars, boats, and a private jet for themselves, and paid fictitious returns to investors in Ponzi-like fashion to keep the scheme going.

The asset freeze obtained by the SEC against Beasley and the other defendants prevents any further dissipation of investor funds. The SEC is seeking permanent injunctions and disgorgement of ill-gotten gains plus interest and penalties.

Despite the successful whistleblower programme at the SEC and the CFTC, residents in the United States continue to be at risk of being duped by Ponzi schemes as there will always be an optimistic scammer lurking, in the belief that they will not get caught.

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