The Securities and Exchange Commission has leveled fraud charges against TruCrowd and three issuers in allegations of fraud regarding $2 million of unregistered securities apparently offered via two investment crowdfunding offerings.
As far as we are aware, this is the first significant enforcement action pertaining to a FINRA regulated funding portal, a new type of intermediary that was created as part of the JOBS Act of 2012.
According to the SEC’s statement, the complaint alleges that Robert Shumake, alongside associates Nicole Birch and Willard Jackson, conducted fraudulent and unregistered crowdfunding offerings through two cannabis and hemp companies, Transatlantic Real Estate LLC and 420 Real Estate LLC.
Shumake, allegedly with assistance from Birch and Jackson, were said to have hidden his involvement in the offerings from the public out of concern that his prior criminal conviction could deter prospective investors.
The complaint alleges that Shumake and Birch raised $1,020,100 from retail investors through Transatlantic Real Estate, and Shumake and Jackson raised $888,180 through 420 Real Estate.
Shumake, Birch, and Jackson allegedly diverted investor funds for personal use rather than using the funds for the purposes disclosed to investors.
The SEC further alleges that TruCrowd Inc., a registered funding portal, and its CEO, Vincent Petrescu, hosted the Transatlantic Real Estate and 420 Real Estate offerings on TruCrowd’s platform. Petrescu allegedly failed to address red flags including Shumake’s criminal history and involvement in the crowdfunding offerings, and otherwise failed to reduce the risk of fraud to investors.
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, commented:
“Crowdfunding offerings enable issuers to cast a wide net for potential investors, emphasizing the importance of full and honest disclosure. 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.”
The SEC’s complaint was filed in the U.S. District Court for the Eastern District of Michigan. The SEC charges Shumake, Birch, Jackson, and 420 Real Estate with violating the antifraud and registration provisions of the Securities Act of 1933 and Securities Exchange Act of 1934, and seeks disgorgement plus pre-judgment interest, penalties, permanent injunctions, and officer and director bars.
The complaint also charges TruCrowd and Petrescu with violating the crowdfunding rules of the Securities Act and seeks disgorgement plus pre-judgment interest, penalties, and permanent injunctions.