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Regulation and Compliance > Federal Regulation > SEC

SEC Charges Bogus Brokers With Fraud

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The Securities and Exchange Commission on Friday charged two men with engaging in fraud and acting as unregistered brokers in connection with the securities offerings of at least two issuers, US Lighting Group (USLG) and Petroteq Energy (PQEFF).

The companies did not immediately respond to requests for comment Monday.

According to the SEC’s complaint, filed in U.S. District Court for the Northern District of Ohio Eastern Division in Cleveland, Jason Allan Arthur of Nevada and Christopher Joseph Bongiorno of Ohio used aliases to convince USLG management that they held the requisite securities licenses to engage in investor solicitations.

However, neither of them registered with the SEC as brokers or dealers, nor were they associated with a broker of dealer registered with the SEC, the complaint said.

From September 2015 through November 2018, Arthur and Bongiorno allegedly solicited individual investors throughout the United States to invest in securities issued by the two firms.

The complaint alleges that, operating under their aliases, Arthur and Bongiorno used lead lists to cold call prospective investors and hired others to work below them to solicit investors to buy USLG or PQEFF securities.

“To obfuscate their receipt of commissions, Arthur and Bongiorno allegedly submitted misleading invoices” to the two companies, the SEC said Monday while announcing their complaint.

Arthur and Bongiorno allegedly received commissions of 35% to 50% of investor funds, totaling at least $1.17 million and $2.36 million, respectively, the SEC claimed.

While Arthur lied to an investor about his compensation, Bongiorno misappropriated investor funds, according to the complaint.

Bongiorno obtained at least $30,000 from investors “by means of misrepresentations and omissions,” the complaint said, noting he “failed to disclose that he intended to and did use investor funds for other things than investments in PQEFF.”

For their roles as investor solicitors, PQEFF paid Arthur and Bongiorno received transaction-based compensation or commissions averaging 39% of investor proceeds, according to the SEC.

To find solicitors to hire, Bongiorno posted various Craigslist advertisements including one, posted on or around Oct. 17, 2017, recruiting “seasoned closers” with “experience in private equity,” the complaint said.

“By using fictitious names, Arthur and Bongiorno knowingly or with severe recklessness made material misrepresentations and omissions to USLG and investors,” the complaint stated. “A reasonable investor would have considered the misstatements and omissions about their true identities important in deciding whether to invest,” it noted.

The complaint charged Arthur and Bongiorno with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 and the broker-dealer registration provisions of Section 15(a)(1) of the Exchange Act.

The SEC is looking to permanently restrain and enjoin the defendants from continued Securities Act violations and from continuing to solicit anybody to buy or sell any additional securities. It is also looking for the defendants to pay an unspecified civil penalty and to “disgorge all ill-gotten gains or unjust enrichment derived” from their fraud, along with prejudgment interest.

The SEC’s investigation was conducted by James Thibodeau and Laurie Abbott and was supervised by Daniel Wadley, regional director of the Salt Lake Regional Office. The litigation will be led by David Whipple, the SEC said.

— Check out SEC Releases Updated List of Fake Regulators, Deceptive Firms on ThinkAdvisor.


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