SEC CHARGES COMPANY FOUNDER WITH SELLING UNREGISTERED SECURITIES IN AN ALLEGED FRAUD SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23321 / August 17, 2015

Securities and Exchange Commission v. EnviraTrends, Inc., et al., Civil Action No. 8:15CV1903T27TGW (M.D. Fla., August 17, 2015)

SEC Charges Development Stage Company and Founder in Unregistered Offering Fraud Scheme

On August 17, 2015, the Securities and Exchange Commission filed a settled civil injunctive action against Russell Haraburda, the founder and Chief Executive Officer of EnviraTrends, Inc., a Sarasota, Florida-based development stage company purportedly in the business of selling pet memorial products. The Commission's action also charged EnviraTrends. The Commission's complaint alleges that Haraburda and EnviraTrends engaged in a fraudulent scheme to sell EnviraTrends securities to the public in unregistered offerings based on false and misleading statements regarding the company's activities and financial condition, and the purposes for which investors' funds would be used, while Haraburda misappropriated most of the money raised from investors for his own personal use. The Commission charges Haraburda and EnviraTrends with violating the antifraud, registration, and other provisions of the federal securities laws.

The Commission's complaint, filed in federal court in the Middle District of Florida, also alleges:

From mid-2009 until at least February 2014, Haraburda and EnviraTrends raised over $2.3 million through the sale of EnviraTrends stock to over 100 investors in thirteen states.

In soliciting these funds, Haraburda and EnviraTrends made numerous oral and written misrepresentations, including in filings with the SEC, regarding EnviraTrends' activities, operations, and finances. Haraburda and EnviraTrends repeatedly assured investors that their money would be used to build the company's business, including arranging for EnviraTrends' shares to be listed on a stock exchange or quoted on the OTC Bulletin Board. Contrary to these representations, Haraburda misappropriated $1.8 million, or 78% of the funds obtained from investors, spending it on personal expenses, including his mortgage payments, car and motorcycle payments, alimony, shopping sprees, and personal travel. EnviraTrends never developed or sold a product or service, never generated revenue, and a public market for EnviraTrends shares was never created.

In annual and quarterly reports and other filings EnviraTrends made with the Commission, Haraburda and EnviraTrends falsely stated that Haraburda had loaned funds to the company. But Haraburda did not make any loans to the Company. While there were occasional transfers of small sums from Haraburda's personal bank account to the company's bank accounts, the funds transferred were investor funds that Haraburda had previously misappropriated.

Haraburda further concealed his misappropriations by falsely stating to auditors that the company owed him hundreds of thousands of dollars, thus creating a pretext for his personal use of investor funds.

After the Commission's investigation of this matter began, Haraburda in 2014 created sham promissory notes purporting to show that he intended to repay the amounts he had misappropriated.

Haraburda and EnviraTrends, without admitting or denying the allegations in the complaint, have agreed to the entry of a final judgment providing permanent injunctive relief, barring Haraburda from serving as an officer or director of a public company, barring Haraburda from being associated with any offering of penny stock, and ordering Haraburda and EnviraTrends to disgorge their ill-gotten gains. The final judgment would provide permanent injunctive relief against Haraburda and EnviraTrends under the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Exchange Act Rule 10b-5. The final judgment would enjoin Haraburda from violating the registration provisions of Sections 5(a) and (c) of the Securities Act; the certification requirements of Exchange Act Rules 13a-14 and 15d-14; and the prohibition against misrepresentations to auditors in Exchange Act Rule 13b2-2; and from aiding and abetting violations of the reporting provisions of Section 13(a) and 15(d)(1) of the Exchange Act, and Exchange Act Rules 12b-20, 13a-1, 13a-13, and 15d-1. The final judgment would further enjoin EnviraTrends from violating Sections 5(a) and (c) of the Securities Act; and Section 13(a) and 15(d)(1) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-13, and 15d-1. The final judgment also would order Haraburda and EnviraTrends to jointly pay more than $2.3 million in disgorgement and prejudgment interest, but would waive these payments, except for $150,000, based their financial condition. The proposed settlement is subject to the approval of the District Court.

The SEC's investigation was conducted by Natalie Shioji, Ranah Esmaili, Donato Furlano, and Lisa Deitch, and assisted by Trial Attorney Michael Semler.

The SEC appreciates the assistance of the Florida Office of Financial Regulation.

SEC ANNOUNCES FRAUD CHARGES AGAINST INVESTMENT ADVISORY FIRM AND CO-OWNERS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

12/10/2014 01:30 PM EST

The Securities and Exchange Commission announced fraud charges against a Buffalo, N.Y.-based investment advisory firm and two co-owners accused of making false and misleading statements to clients when recommending investments in a risky hedge fund.  The hedge fund’s portfolio manager agreed to settle similar charges.

The SEC’s Enforcement Division alleges that Timothy S. Dembski and Walter F. Grenda Jr. steered their clients at Reliance Financial Advisors to invest in a hedge fund managed by Scott M. Stephan, whose experience in the securities industry was greatly exaggerated in offering materials they disseminated.  Dembski and Grenda allegedly knew that Stephan had virtually no hedge fund investing experience at all, and spent the majority of his career collecting on past-due car loans.  Nevertheless, highly speculative investments in the Prestige Wealth Management Fund were recommended to clients who were retired or nearing retirement and living on fixed incomes.  The trading strategy that was allegedly described to investors was fully automated by an algorithm purportedly sought by big banks.  The trading algorithm, however, did not work as intended and Stephan began placing trades manually, which led to the hedge fund’s eventual collapse.

“Investment advisers owe their clients a duty of complete candor when it comes to discussing investment options,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.  “In this case, Dembski and Grenda allegedly violated this fundamental duty by peddling a hedge fund investment that was more risky than depicted and misleading their clients about the portfolio manager’s experience.”

According to the order instituting a proceeding before an administrative law judge, Dembski’s clients invested approximately $4 million in Prestige Wealth Management Fund and Grenda’s clients invested approximately $8 million.  The hedge fund, which began trading in April 2011, did not generate the positive returns advertised, so Grenda withdrew his clients in October 2012.  The fund lost about 80 percent of its value when it collapsed a couple months later, leaving Dembski’s clients to lose the vast majority of their investments.

The SEC’s Enforcement Division further alleges that Grenda borrowed $175,000 from two clients in late 2009 and falsely told them that he would use it as a loan to grow his investment advisory business.  Grenda instead spent the money on personal expenses and debts.

The SEC’s Enforcement Division alleges that Dembski, Grenda, and Reliance Financial Advisors violated the antifraud provisions of the Investment Advisers Act of 1940, Securities Act of 1933, and Securities Exchange Act of 1934, and that Dembski and Grenda aided and abetted and caused violations of those same provisions by Reliance Financial and the general partner to the Prestige Wealth Management Fund.

In a separate order, Stephan agreed to settle findings that he violated the antifraud provisions of the Advisers Act, Securities Act, and Exchange Act, and aided and abetted and caused violations of those same provisions by the general partner to the Prestige Wealth Management Fund.  Without admitting or denying the allegations, Stephan agreed to be permanently barred from the securities industry.  Disgorgement and penalties will be determined at a later date.

The investigation by the SEC’s Enforcement Division was conducted by Tony Frouge, Alexander Janghorbani, Douglas Smith, and Steven G. Rawlings in the New York Regional Office, and the case was supervised by Sanjay Wadhwa.  The litigation will be led by Michael Birnbaum and Mr. Frouge.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority.

SEC OBTAINS VERDICT AGAINST ATTORNEY, REAL ESTATE FINANCE FUND AND FUND MANAGER

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
SEC Obtains Jury Verdict in Its Favor Against Minneapolis Attorney, Real Estate Finance Fund and Fund Manager On Fraud Claims

The Securities and Exchange Commission announced today that, on October 22, 2013, following a five-week trial, a jury in federal district court in St. Paul, Minnesota, returned a verdict against Todd A. Duckson, a Minneapolis, Minnesota attorney, Capital Solutions Monthly Income Fund, LP, a Minneapolis-based real estate lending fund (the "Fund"), and Transactional Finance Fund Management LLC, a company owned by Duckson that became the fund's investment advisor in November 2008. The Commission's complaint, which was filed in September 2010, alleged that the defendants engaged in securities fraud in connection with their offer and sale of interests in the Fund.

The complaint alleged that, from approximately March 2008 through December 2009, the Fund raised $21.6 million from investors in a series of unregistered offerings. During most of the period of the Fund's existence, it made "mezzanine loans" - or loans subordinate to more senior loans - to a single borrower. That borrower encountered financial problems in 2007 and, by May 2008, had defaulted on its obligations to the Fund. As a result, the Fund had no meaningful income-producing assets. The complaint alleged that in written documents provided to investors between March 2008 and late 2009, the Defendants made materially false and misleading statements that effectively hid the Fund's deteriorating financial condition. The complaint also alleged that the Fund would use proceeds raised in offerings primarily to make real estate loans and other investments, when in fact the Fund needed to use most of the proceeds to pay senior lenders on properties the Fund had acquired and to make interest payments to existing investors. Duckson played a key role in drafting the written documents provided to investors, first as the attorney for the Fund and, in and after November 2008, as the Fund's manager.

At the conclusion of a five-week trial, the jury returned a verdict for the Commission and against all three Defendants. In particular, the jury found in favor of the Commission on its claims that Duckson and the Fund violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, that Duckson aided and abetted the Fund's violation of Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, and that Transactional Finance Fund Management LLC violated Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. Finally, the jury found in favor of Transactional Finance Fund Management LLC on the Commission's claim that it violated Section 17(a) of the Securities Act. The jury specifically found that Duckson and the Fund acted with knowledge in committing the violations described above.

The trial team from the Commission's Chicago Regional Office consisted of trial attorneys Eric M. Phillips, Daniel J. Hayes, Benjamin J. Hanauer, attorney Marlene Key-Patterson and paralegal Terri Roberts.

FINAL JUDGEMENT ENTERED AGAINST FORMER CEO OF CHINA VOICE HOLDING CORP.

The following excerpt is from the SEC website: “On November 22, 2011, the Securities and Exchange Commission announced that the Honorable Reed O’Connor, United States District Judge for the Northern District of Texas, entered a Final Judgment against William F. Burbank, IV, the former Chief Executive Officer and President of China Voice Holding Corp. to settle charges that he made false and misleading statements and material omissions regarding China Voice and selectively disclosed material, non-public information regarding the company. Without admitting or denying the allegations in the SEC’s complaint, Burbank agreed to entry of a Final Judgment permanently enjoining him from violating Section 17(a) of the Securities Act of 1933, 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 thereunder and from aiding and abetting violations of Section 13(a) of the Exchange Act and Regulation FD thereunder. The Final Judgment, entered on November 21, also orders Burbank to pay $60,333 in disgorgement and prejudgment interest and a civil penalty of $60,000. In addition, Burbank is barred from ten years from serving as an officer or director of a public company and from participating in an offering of a penny stock. The Commission filed an emergency action on April 28, 2011, alleging that China Voice’s co-founder and former Chief Financial Officer, David Ronald Allen, with the assistance of Alex Dowlatshahi and Christopher Mills, and numerous related entities, launched what became a Ponzi scheme that sought to raise at least $8.6 million from investors across the country. The Commission alleged that, contrary to what investors were told, proceeds were used to pay back earlier investors; to make payments to Allen, Dowlatshahi, and Mills; and to make payments to Allen-affiliated business, including China Voice. The Commission’s complaint alleged that Burbank also received ill-gotten gains from this Ponzi scheme. The SEC’s complaint further charged Burbank and Allen for a series of fraudulent statements about China Voice’s financial condition and business prospects and with selectively disclosing material, non-public information regarding the company to certain shareholders. In addition, the SEC charged China Voice shareholders Ilya Drapkin and Gerald Patera with financing stock promotion campaigns regarding China Voice, including a blast fax campaign conducted by Robert Wilson. The Commission’s case is still pending against remaining defendants China Voice, Allen, Wilson, and various of their related entities.”