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Former co-CEOs of CA tech startup charged with fraud

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Washington D.C. — The Securities and Exchange Commission this week announced charges against Jake Soberal and Irma Olguin, Jr., the former co-CEOs of Fresno, California-based private technology services startup Bitwise Industries Inc., for misleading investors about the company’s finances. Soberal and Olguin have agreed to resolve the charges against them.

The SEC’s complaint alleges that Soberal and Olguin made material misrepresentations and falsified documents concerning Bitwise’s cash position and historical financial performance while raising approximately $70 million from investors in 2022. According to the complaint, Soberal and Olguin created and provided investors with falsified bank records and a fake audit report that showed, respectively, inflated cash balances and higher revenues than Bitwise actually generated. Soberal and Olguin’s alleged misrepresentations and falsified materials painted Bitwise as a healthy, growing business with favorable financial performance. In reality, and as Soberal and Olguin allegedly knew, Bitwise faced constant cash shortages and was often on the brink of failure because it was unable to generate sufficient funds from its operations. As alleged, Soberal and Olguin’s scheme came to light in May 2023 when Bitwise failed to make payroll and abruptly furloughed—and then terminated—all of its hundreds of personnel.

“We allege that Soberal and Olguin resorted to blatant fraud, including the creation of fake financial documents, to deceive investors and raise money,” said Monique C. Winkler, Regional Director of the SEC’s San Francisco Regional Office. “In one instance, the defendants allegedly conspired to send a purported screenshot to investors of a company bank account showing a cash balance of $23.4 million. In actuality, the account had only $325,100 in it. That’s not a bank error—that’s fraud, and the SEC is taking action to hold the defendants accountable.”

The SEC’s complaint, filed in the U.S. District Court for the Eastern District of California, charges Soberal and Olguin with violating the antifraud provisions of the federal securities laws. Soberal and Olguin have each agreed to the entry of a partial judgment, subject to court approval, imposing permanent and conduct-based injunctions as well as an officer and director bar, and reserving the issues of disgorgement, prejudgment interest, and a civil penalty for further determination by the court.

In a parallel action, the U.S. Attorney’s Office for the Eastern District of California (USAO) today announced criminal charges against Soberal and Olguin.

The SEC’s investigation, which is ongoing, is being conducted by Drew Liming and John Roscigno, under the supervision of Rahul Kolhatkar and Jason H. Lee, all of the SEC’s San Francisco Regional Office. The litigation will be conducted by Marc D. Katz and Mr. Liming. The SEC appreciates the assistance of the U.S. Attorney’s Office, the Federal Bureau of Investigation, and the Internal Revenue Service Criminal Investigation.

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Press release by SEC.

Featured image: by FamZoo.

Prosiguen esfuerzos legislativos y sociales contra violencia doméstica

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Four Long Island men charged with $2M “free-riding” scheme

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"Symposium Cisco Ecole Polytechnique 9-10 April 2018 Artificial Intelligence & Cybersecurity" by Ecole polytechnique / Paris / France is marked with CC BY-SA 2.0.

Washington D.C. — The Securities and Exchange Commission has announced fraud charges against Eduardo Hernandez, Christopher Flagg, Daquan Lloyd, and Corey Ortiz, all currently or formerly of Long Island, New York, for perpetrating a multi-year “free-riding” scheme that generated more than $2 million in illicit profits.

The SEC alleges that, from approximately November 2018 through January 2022, the defendants opened brokerage accounts (the victim accounts) that provided the defendants an instant deposit credit once the defendants initiated a transfer of funds to those accounts from related bank accounts, but before the fund transfer was completed. The complaint alleges that, during this short window of time between initiating the transfer and when the bank funds reached the victim accounts, the defendants took advantage of the instant deposit credit feature to purchase illiquid securities from other brokerage accounts that they controlled, for prices at which no rational investor would have purchased them, thereby generating profits in the other brokerage accounts. Later, usually on the same day, the defendants caused those other brokerage accounts to repurchase the same securities from the victim accounts at or near the much lower market price, thereby closing out the positions and leaving the victim accounts with trading losses close to the amount of the instant deposit credits extended to the victim accounts. The defendants then allegedly directed that the victim accounts be abandoned, never actually funding those accounts from the bank accounts. The complaint alleges that, through this scheme in which the defendants controlled both sides of the transactions, they were able to generate guaranteed profits at the victim accounts’ brokerage firm’s expense. All told, during the relevant period, defendants allegedly conducted the fraudulent scheme through at least 600 brokerage accounts.

“As alleged, the SEC uncovered that the defendants sought to enrich themselves by placing losing trades in hundreds of unfunded brokerage accounts that they later abandoned, leaving the brokerage firm to bear the cost,” said Joseph Sansone, Chief of the SEC’s Market Abuse Unit. “This fraudulent conduct undermines the integrity of our markets, and the SEC will continue to use data analysis to identify those who perpetrate these complex schemes and hold them accountable.”

The SEC’s complaint, filed in U.S. District Court for the Eastern District of New York, charges Hernandez and Flagg with violating the antifraud provisions of the Securities Exchange Act of 1934 and Ortiz and Lloyd with aiding and abetting those violations. The SEC also seeks permanent injunctive relief, conduct-based injunctions, disgorgement with prejudgment interest, and civil penalties. The U.S. Attorney’s Office for the Eastern District of New York today announced parallel criminal charges.

The SEC’s ongoing investigation is being conducted by Cynthia Matthews, David Austin, Matthew Lambert, John Marino, Pat McCluskey, and Lindsay Moilanen of the New York Regional Office and the SEC Enforcement Division’s Market Abuse Unit and is being supervised by Mr. Sansone. The SEC’s Office of Market Intelligence provided assistance. The SEC’s litigation will be conducted by Ms. Matthews and Christopher Dunnigan. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Eastern District of New York and the FBI.

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Press release by SEC.

Ayudas para propietarios de viviendas en CA

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Expertos valoran el acoso escolar

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Ayuda legal para estudiantes indocumentados en colegios comunitarios de CA

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La cultura le tiende la mano a la tercera edad

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CA resident charged with multimillion dollar ponzi scheme

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"Fraud Key" by Got Credit is marked with CC BY 2.0.

Washington D.C. — The Securities and Exchange Commission today charged Richmond, California resident Tilila Walker Sumchai with raising approximately $11.8 million from more than 1,000 investors through a fraudulent securities offering targeting members of the Tongan American community across the United States.

According to the SEC’s complaint, from approximately January 2021 through October 2021, Sumchai convinced retail investors to acquire shares of an investment she created called “Tongi Tupe” by falsely claiming that she would use a secret algorithm to generate guaranteed high returns. The complaint alleges that Sumchai first targeted respected Tongan American leaders, who were paid substantial returns on their investments, which convinced many of the leaders to believe that Tongi Tupe was legitimate. Sumchai then organized meetings hosted by these leaders at which Sumchai promoted Tongi Tupe to other members of the Tongan American community. As alleged, Sumchai promised exceedingly high returns, including a $146,000 return in 16 weeks on a $3,000 investment. In reality, the complaint alleges, Tongi Tupe did not generate any returns; instead, Sumchai operated a Ponzi scheme that relied on new investor money to pay earlier investors. Additionally, as alleged in the complaint, Sumchai used investor money for unauthorized and undisclosed purposes, including to pay for casino trips, travel, and shopping.

“As we allege in our complaint, Sumchai sought to enrich herself by exploiting retail investors within the Tongan American community,” said Monique C. Winkler, Director of the SEC’s San Francisco Regional Office. “The SEC will continue to aggressively pursue affinity frauds, which prey on the trust that members of a close-knit community have in each other.”

The SEC’s complaint, filed in U.S. District Court for the Eastern District of California, charges Sumchai with violating the antifraud provisions of the federal securities laws. The SEC seeks permanent injunctions, including a conduct-based injunction, disgorgement with prejudgment interest, a civil penalty, and an officer and director bar.

The SEC’s Office of Investor Education and Advocacy has issued an Investor Alert with tips on how investors can avoid becoming a victim of an affinity fraud.

The SEC’s investigation was conducted by Kashya Shei and Ellen Chen and supervised by Jason H. Lee and David Zhou of the San Francisco Regional Office. The litigation will be led by Sheila O’Callaghan and Ms. Shei.

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Press release by SEC.

Featured image by: Got Credit is marked with CC BY 2.0.

Campaña informativa del FTC contra los timos y fraudes

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"Fraud Key" by Got Credit is marked with CC BY 2.0.

Featured image: by Got Credit is marked with CC BY 2.0.

LA-Based Media and Entertainment Company Charged with Unregistered Offering of NFTs

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"Bitcoin Crypto Coin Stock Photo" by Crypto360 is marked with CC BY 2.0.

Washington D.C. — The Securities and Exchange Commission this week charged Impact Theory, LLC, a media and entertainment company headquartered in Los Angeles, with conducting an unregistered offering of crypto asset securities in the form of purported non-fungible tokens (NFTs). Impact Theory raised approximately $30 million from hundreds of investors, including investors across the United States, through the offering.

According to the SEC’s order, from October to December 2021, Impact Theory offered and sold three tiers of NFTs, known as Founder’s Keys, which Impact Theory called “Legendary,” “Heroic,” and “Relentless.” The order finds that Impact Theory encouraged potential investors to view the purchase of a Founder’s Key as an investment into the business, stating that investors would profit from their purchases if Impact Theory was successful in its efforts. Among other things, Impact Theory emphasized that it was “trying to build the next Disney,” and, if successful, it would deliver “tremendous value” to Founder’s Key purchasers. The order finds that the NFTs offered and sold to investors were investment contracts and therefore securities. Accordingly, Impact Theory violated the federal securities laws by offering and selling these crypto asset securities to the public in an unregistered offering that was not otherwise exempt from registration.

“Absent a valid exemption, offerings of securities, in whatever form, must be registered,” said Antonia Apps, Director of the SEC’s New York Regional Office. “Without registration, investors of all types are deprived of the protections afforded them by the robust disclosures and other safeguards long provided by our securities laws.”

Without admitting or denying the SEC’s findings, Impact Theory agreed to a cease-and-desist order finding that it violated registration provisions of the Securities Act of 1933 and ordering it to pay a combined total of more than $6.1 million in disgorgement, prejudgment interest, and a civil penalty. The order also establishes a Fair Fund to return monies that injured investors paid to purchase the NFTs. Impact Theory agreed to destroy all Founder’s Keys in its possession or control, publish notice of the order on its websites and social media channels, and eliminate any royalty that Impact Theory might otherwise receive from future secondary market transactions involving the Founder’s Keys.

The SEC’s investigation was conducted by Benjamin Mishkin, Jessica Quinn, and Judith Weinstock of the SEC’s New York Regional Office. Hane L. Kim of the Division of Examinations, Gwen Licardo, Pamela Sawhney, and Mark R. Sylvester of the Enforcement Division’s Crypto Assets and Cyber Unit (CACU) and Carmen Taveras Alam, Ignacio Franceschelli, and Joshua Mallett of the Division of Economic and Risk Analysis provided assistance. The investigation was supervised by Sheldon Pollock, David Hirsch, and Jorge Tenreiro.

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Press release by SEC.

Featured image: by Crypto360 is marked with CC BY 2.0.

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