Dive Brief:
- The Securities and Exchange Commission filed changes against five unregistered brokers for allegedly making fraudulent offerings for investments in pre-initial public offering companies and raising at least $528 million from more than 4,000 investors worldwide.
- Using a nationwide network of unregistered sales agents, the defendants told investors that there were no upfront investment fees, and that the defendants would only make a profit after the companies went public, the SEC said in a press release. However, the defendants and their network of four unregistered companies charged investors undisclosed mark-ups as high as 150%, pocketing more than $88 million.
- “The defendants sold unregistered securities to investors based on false promises of no upfront fees when they siphoned off millions from such undisclosed fees for themselves,” Sheldon Pollock, associate regional director in the SEC’s New York regional office said in a statement. “We continue to scrutinize closely the sale of unregistered, pre-IPO investments to retail investors.”
Dive Insight:
The SEC during fiscal year 2023 filed 784 enforcement actions, 3% more than during the prior fiscal year, the Wall Street watchdog said in a release last month. It secured $5 billion in penalties and disgorgement, and returned $930 million to harmed investors.
The SEC’s targets ranged “from billion-dollar frauds to emerging investor threats involving crypto asset securities and cybersecurity, and charged violations by diverse market participants, from public companies and investment firms to gatekeepers and social media influencers,” the agency said.
After investigations by enforcement division staff, the SEC halted swindles against retail investors including Ponzi schemes and so-called affinity fraud, in which wrongdoers prey on a specific demographic group.
For example, the agency cracked down on scams targeting elderly church members, Spanish-speaking communities and Tongan-Americans, the SEC said.
The five unregistered brokers recently charged by the SEC lured investors with false promises that they would receive pre-IPO shares without any fees and be charged only after the company went public, the agency said.
The defendants primarily acted through Prior2IPO, a company based in Sparta, New Jersey, which on its website advertised itself as “connect[ing] private accredited investors to shares of the largest industry disruptors. Sometimes at discounts as much as 50% of the expected IPO,” according to the SEC’s filing.
The company and affiliated sales agents made their investment pitch through referrals and paid advertisements on Facebook, LinkedIn and other social media platforms, the SEC said. The “no upfront fee” promise was also included in pitch books, Pior2IPO podcasts and videos posted on social media posts, and both scripts and written communications used by sales agents.
“The charged individuals went to great lengths to conceal the identity of one of the scheme’s ringleaders, [Raymond] Pirrello, from investors and potential employees to hide the fact that he was barred from associating with broker-dealers in an earlier administrative proceeding by the SEC, after a jury found him liable for insider trading in August 2019,” the SEC said.
Pirrello was arrested on Dec. 6 and indicted on charges of securities fraud conspiracy, wire fraud conspiracy and securities fraud using Prior2IPO and other sales offices, according to the U.S. Attorney’s Office for the Eastern District of New York. If convicted, Pirrello faces a maximum sentence of 20 years imprisonment.
