The Securities and Exchange Commission charged three individuals who defrauded investors in a company that falsely claimed to be developing a caffeinated chocolate snack and nearing an acquisition by Monster Energy or Coca-Cola Co.
The SEC’s complaint alleges that Lisa Bershan and her husband, Barry Schwartz, together with business associate Joel Margulies, falsely promised investors that after being acquired, Starship Snack Corp. investors would get a one-to-one exchange of Starship shares for Monster or Coca-Cola shares.
According to the SEC’s complaint, Bershan and Margulies also falsely claimed that investors had “no downside risk,” and Bershan personally guaranteed that investors could get their investment back with 5% interest if the shares failed to appreciate over a year.
According to the SEC’s complaint, Starship had no agreement with Monster Energy or Coca-Cola, and Bershan and Schwartz spent investor funds to rent and decorate a New York City apartment and on travel, meals and other personal expenses.
“As alleged in our complaint, investors trusted Bershan, Schwartz and Margulies, but that trust was misplaced,” said Lara S. Mehraban, associate regional director of the SEC’s New York Regional Office, in a statement. “The defendants constantly reassured their investors with lies, all the while taking their money and spending it on themselves.”
The SEC’s complaint charges Bershan, Margulies and Schwartz with violating antifraud provisions of the federal securities laws and a related SEC antifraud rule. The SEC is seeking to have the defendants return their allegedly ill-gotten gains plus interest, pay penalties, and be subject to permanent injunctions.
In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against the three defendants.
SEC Charges Attorney With Participating in Ponzi Scheme
The SEC filed fraud charges against an attorney, Marc Celello, based on his alleged participation in a Ponzi scheme.
The SEC’s complaint alleges that Celello — who, along with Canton, Georgia resident James Torchia, was a partner in Credit Nation Capital and served as general counsel for the underlying entities — helped orchestrate a Ponzi scheme involving unregistered promissory notes that falsely promised a 9% return.
Between 2009 and November 2015, when the SEC obtained a court order stopping the alleged Ponzi scheme, Credit Nation Capital raised at least $30 million from investors.
According to the SEC, Celello allegedly prepared offering memoranda and directed sales and marketing representatives to lie to investors that the promissory notes were secure investments “backed by hard assets dollar for dollar.”
The complaint further alleges that Celello knew that Credit Nation Capital was insolvent and directed an employee to fabricate a fraudulent balance sheet that made it appear to be profitable. Celello also allegedly helped transfer investor funds from CN Capital to Torchia for Torchia's personal use.
The complaint seeks permanent injunctions, an accounting, disgorgement plus interest, and civil penalties.
Lawyers Charged With Assisting a Microcap Fraud Scheme
The SEC charged two lawyers it alleges helped facilitate a microcap fraud scheme involving undisclosed “blank check” companies secretly bound for reverse mergers.
The SEC alleges that James Schneider of Hillsboro Beach, Florida, and Andrew Wilson of Nevada City, California, contributed to a fraud involving at least 22 undisclosed blank check companies. Such companies have no operations, making them attractive targets for those seeking reverse mergers for use in pump-and-dump schemes.
Despite claims of legitimate business plans, separate management and independent shareholders, the 22 companies and their securities were secretly controlled by Steven Sanders, along with Daniel McKelvey or Alvin Mirman, and sold in reverse mergers. The SEC previously filed an enforcement action against Sanders, McKelvey and Mirman, who were separately convicted of related criminal charges and sentenced to prison.
According to the SEC’s complaints, the scheme required the blank check companies to have shares available for sale in the open market. Schneider and Wilson allegedly provided legal opinion letters falsely stating that the companies’ shares were validly issued or free to be resold publicly.
The SEC alleges that Schneider knowingly prepared at least 40 false opinion letters and referred numerous buyers to the shell companies’ secret owners. The SEC alleges that Wilson provided at least five opinion letters that unlawfully allowed restricted securities of at least three issuers to be sold to the public. The SEC alleges that Wilson opined that the shares were unrestricted when he knew or should have known that Sanders and McKelvey secretly controlled them.
The SEC complaints are seeking to have the defendants return their allegedly ill-gotten gains, pay civil penalties, be barred from the penny-stock business and other relief.
SEC Halts Misappropriation of Investor Funds by 'Frack Master' and his Entities
The SEC obtained court-ordered emergency relief halting an ongoing fraud perpetrated by the self-proclaimed “Frack Master” and two others.
The court’s order froze the assets of Christopher Faulkner, Breitling Energy Corp. (BECC) and Breitling Oil and Gas Corp. (BOG). The order also appointed a temporary receiver over their assets and preliminarily enjoined them from violating antifraud provisions of the federal securities laws.
The SECs complaint charged 12 defendants and two relief defendants for their roles in an alleged $80 million securities-fraud scheme orchestrated by Faulkner.
The complaint alleged that, through his companies, Faulkner — while misrepresenting his education and experience — sold investors working-interest units in multiple oil-and-gas projects. Faulkner allegedly oversold the available units for each project and inflated the estimated project costs.
According to the SEC's complaint, despite representing to investors that their investment proceeds would be segregated by project, Faulkner and his companies commingled and misappropriated investor money, spending tens of millions of dollars for Faulkner's benefit, including lavish meals and entertainment, international travel, cars, jewelry, gentlemen's clubs and personal escorts.
In the alleged scheme, Faulkner signed untrue and misleading reports that BECC filed with the SEC. Ultimately, the SEC alleges, investors in Faulkner's companies received back only a fraction of the money they paid into the scheme.
After filing the complaint, the SEC uncovered evidence that Faulkner, BECC and BOG were continuing to victimize investors by misappropriating oil-and-gas production revenue owed to them.
Based on this evidence, the court imposed the asset freeze, receivership and injunctive relief requested by the SEC.
--- Check out Enforcement: 'Frack Master' Charged With Taking $30M From Investors on ThinkAdvisor.