As U.S. securities regulators were in the process of shutting down a boiler room brokerage scheme, the firm’s perpetrators simply rebranded and continued duping investors, regulators allege.
The U.S. Securities and Exchange Commission (SEC) announced it obtained a preliminary injunction, asset freeze and other emergency relief against a New York-based brokerage firm, Legend Venture Partners LLC, in connection with an alleged fraudulent scheme pitching pre-IPO companies.
The regulator’s complaint, which was filed in U.S. district court for the Southern District of New York, alleges the firm cold-called investors, raising at least US$35 million for its unregistered investment funds.
The SEC alleged the firm misled investors, charged excessive markups, and paid more than US$12.8 million in undisclosed compensation to its brokers and principals.
The regulator said it shut down a similar scheme last year by a company called StraightPath Venture Partners LLC, and that many of Legend’s principals and sales reps previously worked at that firm, which is now in receivership and facing SEC enforcement action.
Almost 60% of Legend’s investors were also customers of the previous firm, it noted.
“We allege that, just as the SEC was in the process of shutting down StraightPath, the defendant simply rebranded that scheme and used StraightPath’s documents and sales agents to solicit and deceive investors about Legend’s compensation,” said Sheldon Pollock, associate director of the SEC’s New York office, in a release.
“We filed this emergency action to protect victims of the alleged copy-cat scheme,” Pollock added.
The complaint charges the firm with securities fraud and seeks permanent injunctive relief, disgorgement, and civil penalties.
The allegations have not been proven.