SEC ANNOUNCES CHARGES AGAINST 2 OPERATORS IN HIGH-YIELD INVESTMENT SCHEME

FROM:  U.S. SECURITIES AND INVESTMENT COMMISSION 

The Securities and Exchange Commission announced charges against two India-based operators of an alleged high-yield investment scheme seeking to exploit investors through pervasive social media pitches on Facebook, YouTube, and Twitter.

The SEC’s Enforcement Division alleges that Pankaj Srivastava and Nataraj Kavuri offered “guaranteed” daily profits as they anonymously solicited investments for their purported investment management company called Profits Paradise.  They invited investors to deposit funds that supposedly would be pooled with money from other investors and traded on foreign exchanges as well as in stocks and commodities.  They created a Profits Paradise website and related social media sites to describe the profits as “huge,” “lucrative,” and “handsome,” and they characterized the risk as “minimal.”

The SEC’s Enforcement Division alleges that the guaranteed returns were false, and that the investments being offered bore the hallmark of a fraudulent high-yield investment program.  Srivastava and Kavuri attempted to conceal their identities by supplying a fictitious name and contact information when registering Profits Paradise’s website address.  They also communicated under the fake names of “Paul Allen” and “Nathan Jones.”  After the SEC began its investigation into the investment offering, the Profits Paradise website was discontinued.

“Srivastava and Kavuri used excessive secrecy in their effort to swindle investors through social media outreach and a website that attracted as many as 4,000 visitors per day,” said Stephen Cohen, Associate Director of the SEC’s Division of Enforcement.  “Our investigation stopped the constant solicitations once the website disappeared, and successfully tracked down the identities of the perpetrators behind those fraudulent solicitations.”

According to the SEC’s order instituting administrative proceedings, Srivastava and Kavuri used the Profits Paradise website and YouTube videos to detail three investment plans with terms of 120 business days.  The first plan purportedly yielded daily interest of 1.5 percent on investments of $10 to $749.  The second plan purportedly yielded 1.75 percent on investments of $750 to $3,499.  And the third plan purportedly yielded 2 percent on investments of $3,500 and above.  Postings on Profit Paradise’s Facebook page promised investors they could “Enjoy Hassle Free Income” and advertised a “5% Referral Commission.”  The scheme also utilized a Profits Paradise Twitter account to steer potential investors to the Profits Paradise website, and Srivastava and Kavuri created a Google Plus page to promote the investment opportunity.

The SEC’s Enforcement Division alleges that Srivastava and Kavuri violated Sections 17(a)(1) and (3) of the Securities Act of 1933, and will litigate the matter before an administrative law judge.

The SEC’s investigation was conducted by Carolyn Kurr and Daniel Rubenstein, and the case was supervised by C. Joshua Felker.  The SEC’s litigation will be led by Kenneth Donnelly.  The SEC appreciates the assistance of the Securities and Exchange Board of India as well as the Autorité des Marchés Financiers in Quebec, the Ontario Securities Commission, and the Securities and Futures Commission in Hong Kong.

The SEC today updated an investor alert educating investors about how social media may be used to promote so-called high-yield investment programs and other fraudulent investment schemes.

“We urge investors to exercise extreme caution if they are approached to invest in a website promising incredible returns with minimal or no risk.  So-called high-yield investment programs are often frauds,” said Lori J. Schock, Director of the SEC’s Office of Investor Education and Advocacy.

HONOLULU RESIDENT CHARGED WITH USING SOCIAL MEDIA TO DEFRAUD INVESTORS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission announced fraud charges against a Honolulu woman posing as an investment banker and soliciting investors through Twitter, Facebook, and other social media.

An SEC investigation found that Keiko Kawamura engaged in two separate fraudulent schemes to raise money from investors while casting herself as an investment and hedge fund expert when in fact she had virtually no prior trading experience.  In one scheme, she sought investors for her self-described hedge fund and posted on Twitter some screenshots of brokerage account statements suggesting she was personally obtaining incredible investment returns.  However, the account statements were not hers.  And instead of investing the money she raised from investors, she spent it on her own living expenses and luxury trips to Miami and London.  In a later scheme, Kawamura continued to boast phony experience to attract investors to her subscription service for investment advice.  She falsely told subscribers that she had been in the investment banking industry for nearly a decade and had achieved 800 percent returns in her personal brokerage account.

“As alleged in our case, Kawamura used social media to ensnare investors and raise money to support her lifestyle,” said Michele Wein Layne, director of the SEC’s Los Angeles Regional Office.  “Investors should beware of fraudsters who use social media to hide behind anonymity and reach many investors with little to no cost or effort.”

The SEC’s order instituting administrative proceedings alleges that Kawamura willfully violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 20(4)-8.  The administrative proceedings will determine any remedial action or financial penalties that are appropriate in the public interest against Kawamura.

The SEC’s investigation was conducted by Brent Smyth and Finola H. Manvelian of the Los Angeles Regional Office.  The SEC’s litigation will be led by Donald Searles.