Category: Misrepresentations

Misrepresentations in mergers, acquisitions, and financial markets occur when parties involved provide false or misleading information to deceive others and gain an unfair advantage. In mergers and acquisitions, this might involve overstating a company’s financial health, inflating asset values, or concealing liabilities to make a deal appear more attractive than it is. In financial markets, misrepresentations can include misleading financial statements, deceptive trading practices, or fraudulent reporting that manipulates stock prices or investor perceptions. Such misrepresentations undermine market integrity, mislead investors, and can lead to significant financial losses and legal consequences for the parties involved.

SEC-PR-2024-69

Categories Misrepresentations SEC-2406
SEC NEWS - SEC-PR-2024-69SEC-PR-2024-69 (JUN. 7, 2024)
PRESS RELEASE | 2024-69

SEC Charges Three New Yorkers for Raising More Than $184 Million Through Pre-IPO Fraud Schemes. After Commission shut down original ploy, defendants started another one.

Washington D.C., June 7, 2024 — The Securities and Exchange Commission today charged three individuals with fraud for selling unregistered membership interests in LLCs that purported to invest in shares of pre-IPO companies, first on behalf of StraightPath Venture Partners LLC, the subject of the Commission’s emergency action ⊗ in May 2022, and, later, on behalf of Legend Venture Partners LLC, the subject of the Commission’s emergency action ⊗ in June 2023. Both StraightPath ⊗ and Legend ⊗ are now under court-ordered receiverships.

In this new action, the SEC alleges that New York residents Mario Gogliormella, Steven Lacaj, and Karim Ibrahim directed an unregistered sales force of more than 50 callers in boiler rooms to pressure investors into making investments without telling them that the shares had been substantially marked up—between approximately 19 and 105 percent on average above the prices that StraightPath or Legend had paid for the underlying shares. As a result of these tactics, the defendants and their sales force allegedly pocketed more than $45 million in fees from unsuspecting investors from 2019 to 2022.

“We allege that the fraud in this case is like a Hollywood movie where the defendants ran boiler rooms using scripts they referred to as the ‘Bible,’ engaged in high-pressure sales tactics, and employed outright falsehoods to defraud investors,” said Sheldon L. Pollock, Associate Director of the New York Regional Office. “After the SEC shut them down the first time, they simply rebranded their outfit, and today through our action we are seeking to ensure that they are held accountable for enticing and lying to investors.”

The SEC’s complaint charges the defendants with violating antifraud and other provisions of the federal securities laws. The complaint seeks permanent injunctive relief, return of allegedly ill-gotten gains, and civil penalties. The SEC also charged Adam Ibrahim, Karim Ibrahim’s brother, as a relief defendant.

The U.S. Attorney’s Office for the Southern District of New York today unsealed an indictment charging Gogliormella, Lacaj, and Karim Ibrahim with securities fraud, among other offenses, in connection with their work for StraightPath and Legend.

The SEC’s ongoing investigation is being conducted by Joshua D. Tannen and Lee A. Greenwood of the Asset Management Unit and Sushila P. Rao, Suzanne M. Bettis, Megan Genet, Tiantong Wen, Douglas Smith, Kerri L. Palen, Patricia Schrage, Daniel Loss, Alistaire Bambach, and Steven G. Rawlings of the New York Regional Office. It is being supervised by Mr. Pollock. The litigation will be led by Ms. Rao, Mr. Tannen, and Ms. Bettis and supervised by Mr. Loss and Mr. Pollock.

The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York and the U.S. Postal Inspection Service.

Investors can learn more about the risks of investing in pre-IPO offerings in this Investor Alert ⊗.

The pre-IPO space remains a priority area for the Division of Enforcement and the New York Regional Office. In addition to the prior StraightPath and Legend actions, the New York Regional Office has also filed other charges in other matters, including:

  • In December 2023, the Commission charged ⊗ five individuals and four companies in a $528 million pre-IPO fraud.
  • In March 2023, the SEC charged ⊗ three StraightPath sales agents with fraud and unregistered broker activity.
  • In December 2020, the SEC charged ⊗ a boiler room operator with defrauding retail investors in the sale of pre-IPO shares.
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SEC-PR-2024-10

Categories Misrepresentations SEC-2401
SEC NEWS - SEC-PR-2024-10SEC-PR-2024-10 (JAN. 25, 2024)

PRESS RELEASE | 2024-10

SEC Charges Northern Star SPAC for Material Misrepresentations in its IPO-Related Disclosures

Washington D.C., Jan. 25, 2024 — The Securities and Exchange Commission today announced that Northern Star Investment Corp. II, a special purpose acquisition company (SPAC), agreed to settle charges that it made misleading statements in forms filed with the SEC as part of its January 2021 initial public offering (IPO).

According to the SEC’s order, Northern Star stated in its SEC filings that neither the company nor anyone acting on its behalf had initiated any substantive discussions with any potential target companies prior to the IPO. However, the SEC’s order finds that Northern Star had engaged in discussions with a target company and that company’s controlling shareholder in connection with a potential SPAC business combination dating back to December 2020 and continuing for several weeks. Furthermore, according to the SEC’s order, after announcing a merger agreement with the target company, Northern Star did not adequately disclose its interactions with the target company in its Form S-4 filings.

“Northern Star’s failure to disclose discussions with its merger target kept investors in the dark about its future plans, information that would have been important in deciding whether to invest in this SPAC,” said Nicholas P. Grippo, Director of the SEC’s Philadelphia Regional Office. “Given that the purpose of a SPAC is to identify and acquire an operating business, SPACs should be transparent about any pre-IPO discussions with potential acquisition targets.”

The SEC’s order finds that Northern Star violated an antifraud provision of the Securities Act of 1933. Without admitting or denying the SEC’s findings, Northern Star agreed to a cease-and-desist order and to pay a $1.5 million penalty in the event it closes a merger transaction.

The SEC’s investigation was conducted by Oreste P. McClung and Brian R. Higgins and was supervised by Brendan P. McGlynn, Scott A. Thompson, and Mr. Grippo, all with the Philadelphia Regional Office.

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