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SEC Busts Bitcoin and Co-working Space Investment Schemes: Enforcement

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The Securities and Exchange Commission has filed fraud charges against the “clandestine founder of a purported bitcoin platform and a chain of co-working spaces located in former bars and restaurants,” according to an announcement. The SEC alleges that Renwick Haddow, a U.K. citizen living in New York, bilked investors in both companies while hiding his connection given his checkered past with regulators in the U.K.

According to the SEC, Haddow created a broker-dealer and did not register the firm with the SEC as required under the federal securities laws. Haddow allegedly used sales representatives to cold call potential investors and sell securities in Bitcoin Store Inc. and Bar Works Inc.

According to the SEC’s complaint, offering materials presented to investors in both companies touted the backgrounds of senior executives who do not appear to exist. The materials also misrepresented other key facts about both companies’ operations.

“As alleged in our complaint, Haddow created two trendy companies and misled investors into believing that highly qualified executives were leading them to quick profitability. In reality, Haddow controlled the companies from behind the scenes and they were far from profitable,” Andrew M. Calamari, director of the SEC’s New York Regional Office, said in a statement.

Haddow allegedly diverted more than 80% of the funds raised by the broker-dealer for the Bitcoin Store, and sent more than $4 million from the Bar Works bank accounts to one or more accounts in Mauritius and $1 million to one or more accounts in Morocco.

The SEC alleges that materials provided to Bitcoin Store investors claimed it was “an easy-to-use and secure way of holding and trading bitcoin” and had generated several million dollars in gross sales. In fact, the SEC alleges that Bitcoin Store has never had any operations nor generated the gross sales it touted.  

According to the SEC’s complaint, Bar Works claimed to bring “real vibrancy to the flexible working scene by adding full-service workspaces to former bar and restaurant premises in central city locations.”  Bar Works primarily sold leases coupled with subleases that together functioned like investment notes. The company also allegedly sold leases for more workspaces than actually existed in at least two locations. Among false claims made to investors, who invested more than $37 million in the Bar Works scheme, were that a location was profitable within months of opening and that Bar Works had engaged an auditor.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Haddow.

The SEC has obtained an emergency asset freeze against all defendants and relief defendants in the case.

SEC Charges Real Estate Agent With Selling Unregistered Notes in Brother’s Ponzi Scheme

The SEC announced charges against Cheryl L. Jones, a Washington, D.C.-based real estate agent and the sister of convicted Ponzi scheme operator Mark A. Jones, for selling unregistered securities.

The SEC’s complaint alleges that Cheryl Jones recruited many of her friends and associates to invest in unregistered promissory notes and personal guarantees that Mark Jones issued in connection with his Ponzi scheme.

Mark Jones allegedly claimed that investors’ money would be pooled to provide short-term “bridge loans” to Jamaican companies that had supposedly been approved for commercial bank loans but needed interim financing until their bank loan funding came through. Instead, he deposited the investors’ money in his personal bank account and diverted almost all of it for personal expenses and to make “Ponzi” payments to other investors.

The complaint further alleges that between 2007 and 2015, Cheryl Jones was wrongfully enriched when she received payments from her brother totaling approximately $515,000 more than her approximately $876,000 investment in the Bridge Fund. Other investors lost substantial portions of their investments.

The SEC seeks a permanent injunction against Cheryl Jones, disgorgement of her ill-gotten gains plus prejudgment interest, and a civil penalty.

Cheryl Jones’ brother, Mark Jones, pleaded guilty to criminal charges arising from his operation of the Ponzi scheme and was sentenced to 70 months in prison. The SEC charged Jones with securities fraud and obtained a default judgment.

SEC Charges IT Company, Former Execs With Accounting Fraud

The SEC charged Chicago-area information technology company Quadrant 4 System Corp. (QFOR) and two former top executives in an accounting fraud scheme that misled investors and allowed the former executives to siphon millions from the firm for their personal benefit.

The SEC’s complaint alleges that former chief executive officer Nandu Thondavadi and former chief financial officer Dhru Desai stole more than $4 million from Schaumburg, Illinois-based QFOR over a nearly five-year period. The former executives also are alleged to have caused QFOR to understate its liabilities and inflate its revenues and assets, evading scrutiny by lying to the company’s auditors and providing them with forged and doctored documents.

According to the SEC’s complaint, the alleged scheme continued until November 2016, when Thondavadi and Desai were arrested and criminally charged with fraud.  QFOR announced their resignations in December 2016 and disclosed that the company’s financial reports could no longer be relied upon and required a restatement.

The SEC’s complaint charges QFOR with filing false and misleading quarterly, annual, and other reports, failing to make and keep accurate books and records, and internal accounting control failures. Thondavadi and Desai are charged with multiple violations, including fraud, falsifying books and records, lying to auditors, falsely certifying QFOR’s filings, and aiding and abetting QFOR’s alleged violations.

In a parallel action, the U.S. Attorney’s Office for the Northern District of Illinois today announced additional criminal charges against Thondavadi and Desai, including charges that Thondavadi and Desai attempted to obstruct the SEC’s investigation, lied to the SEC under oath, and paid two individuals to lie to the SEC in the course of its investigation.

The SEC’s complaint seeks injunctions and return of allegedly ill-gotten gains plus interest and penalties against the company and the former executives as well as officer-and-director bars against Thondavadi and Desai.

SEC Obtains Final Judgment Against CEO Charged With Accounting Fraud

The SEC obtained a final judgment against Ryan Petersen, the former chief executive officer of OCZ Technology Group Inc., whom the SEC charged with an accounting fraud at the now-bankrupt seller of computer memory storage and power supply devices.

The final judgment bars Petersen from acting as an officer or director of a public company, and orders him to pay $121,600 in disgorgement and relief, prejudgment interest on the disgorgement of $18,400, and a civil penalty in the amount of $100,000. Petersen consented to the final judgment.

The SEC charged Petersen with engaging in a scheme to materially inflate OCZ’s revenues and gross margins from 2010 to 2012.

Court Enters Final Judgment Against Former Pharmaceutical Company Exec and Friend for Insider Trading

The SEC announced that a final judgment had been entered against Sasan Sabrdaran, the former director of drug safety risk management at Brisbane, California-based InterMune Inc., and his longtime friend, Farhang Afsarpour.

The final judgment orders payment of disgorgement and prejudgment interest and imposes an officer and director bar following a jury verdict that found both defendants had engaged in insider trading.

Sabrdaran tipped Afsarpour in 2010 with confidential details while Sabrdaran was involved with shepherding InterMune’s application before a European Union regulatory body to market an InterMune drug called Esbriet to be used for the treatment of patients with a type of fatal lung disease.

The final judgment orders Afsarpour to pay $386,671.99 in disgorgement, of which Sabrdaran is jointly and severally liable for payment of up to $288,968.19, and orders Afsarpour to pay $69,919.93 in prejudgment interest. The final judgment also bars Sabrdaran from acting as an officer or director of any SEC-reporting company.