For the first time, the U.S. Securities and Exchange Commission (SEC) is charging a crowdfunding portal along with the alleged perpetrators of an investment scheme.
The SEC alleged that three people and an issuer carried out a fraudulent scheme to raise nearly US$2 million from investors via unregistered securities in two crowdfunding offerings. The regulator also charged the funding portal and its CEO for allowing the offerings on the portal’s platform.
According to the SEC’s complaint, the trio — Robert Shumake, Nicole Birch and Willard Jackson — diverted investor funds that were raised in crowdfunding offerings for personal use. Almost US$2 million was raised on a registered funding portal, TruCrowd Inc., through two cannabis and hemp companies, Transatlantic Real Estate LLC and 420 Real Estate LLC.
The SEC’s complaint, which was filed in the U.S. District Court for the Eastern District of Michigan, charges Shumake, Birch, Jackson and 420 Real Estate with securities law violations. The regulator is seeking disgorgement plus pre-judgment interest, penalties, permanent injunctions, and officer and director bars.
The complaint also charges TruCrowd and its CEO with violating the crowdfunding rules by allegedly failing to address red flags, including Shumake’s criminal history and involvement in the offerings, and otherwise failing to reduce the risk of fraud to investors. The SEC is also seeking disgorgement plus pre-judgment interest, penalties and permanent injunctions against TruCrowd.
None of the allegations have been proven.
“Crowdfunding offerings enable issuers to cast a wide net for potential investors, emphasizing the importance of full and honest disclosure,” said Gurbir Grewal, director of the SEC’s enforcement division, in a release.
“As companies continue to raise funds through crowdfunding offerings, we will hold issuers, gatekeepers, and individuals accountable and enforce the protections in place for all investors,” he added.