Boiler Room Defrauds Investors of $35 Million, SEC Intervenes

<p>The
<a href="https://www.financemagnates.com/terms/s/securities-and-exchange-commission-sec/">Securities and Exchange Commission (SEC</a>) yesterday (Tuesday) confirmed it had
acquired a preliminary injunction and asset freeze against Legend Venture
Partners LLC. The unregistered broker-dealer, based in New York City, is
implicated in a fraudulent scheme surrounding the sale of interests in private
companies poised for a public offering (IPO). </p><p>The case is
similar to a scheme previously orchestrated by StraightPath Venture Partners
LLC, which the SEC shut down last year. Notably, many of Legend's principals and
sales agents had previously been employed by StraightPath.</p><p>Boiler Room Operations under
Scrutiny of SEC</p><p>According
to the <a href="https://www.sec.gov/news/press-release/2023-119" target="_blank" rel="nofollow">SEC's complaint</a>, Legend operated boiler room activities from February to
October 2022 and sold securities issued by the Legend Funds. The Legend Funds
invested in shares or interests in specific pre-IPO companies. The boiler room,
manned by a substantial network of unregistered sales agents, performed cold
calls and raised at least $35 million from over 300 investors.</p><p>Legend
allegedly made a series of false statements to investors. These included claims
that its sales agents did not receive upfront fees or commission and that the
firm would only profit if the investor made a profit on an IPO. </p><p>Contrary to
these assertions, the SEC stated that Legend applied extreme, undisclosed
markups to the prices it had paid for the pre-IPO shares. These markups averaged at almost
60%, reaching up to 105% per share. The firm also paid its sales agents and
principals more than $12.8 million in upfront compensation.</p><p>“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,” Sheldon
L. Pollock, the Associate Director of the New York Regional Office of the SEC,
commented. “We filed this emergency action to protect victims of the alleged
copy-cat scheme.”</p><p>Legal Implications and
Further Actions</p><p>The <a href="https://www.financemagnates.com/tag/sec/" target="_blank" rel="follow">SEC </a>is accusing
Legend of violating antifraud and certain registration provisions of the
federal securities laws. The commission is seeking permanent injunctive relief,
civil penalty and the return of allegedly ill-gotten gains.</p><p>The US
District Court Judge for the Southern District of New York has issued an order
imposing a temporary restraining order, asset freeze, and other restrictions. A
preliminary injunction was granted on 27 June, enjoining Legend from violating
the charged provisions of the federal securities laws. The decision on the
SEC's request to appoint a receiver over Legend and the Legend Funds is
currently pending.</p><p>Boiler Rooms Are a Serious
Problem for the SEC</p><p><a href="https://www.financemagnates.com/tag/boiler-room/" target="_blank" rel="follow">Boiler room
scams</a> are among the oldest tactics in investment fraud, as the perpetrators
engage in cold calls to potential victims and persuade them to buy junk stocks.
The operation of such a scheme was portrayed in the 2013 movie ‘The Wolf of
Wall Street’.</p><p>The SEC has
repeatedly warned about boiler rooms, financial pyramids, and Ponzi schemes in
the past. These often victimize retail investors. An example is the FX Ponzi
scheme, which <a href="https://www.financemagnates.com/forex/fx-ponzi-scheme-deceived-1500-individuals-with-false-promise-of-325-returns/" target="_blank" rel="follow">the SEC reported earlier this week</a>. The company owned by Sanjay
Singh is accused of defrauding a total of 1,500 investors for an amount of $112
million.</p><p>In the
past, creators of boiler rooms, even smaller than the one described above, were sentenced to long prison terms. One of them is Michael
Nascimento, who was <a href="https://www.financemagnates.com/forex/regulation/leader-of-2-8-million-boiler-room-scam-sentenced-to-11-years-imprisonment/" target="_blank" rel="follow">sentenced to 13 years</a> imprisonment in 2018. Over ten
years ago, he and his fellow scammers were cold-calling strangers to persuade
them to buy shares in a company that supposedly owned land in Madeira.</p>

This article was written by Damian Chmiel at www.financemagnates.com.