The Securities and Exchange Commission has charged three people with fraud in a scheme to sell nearly $2M of unregistered securities through two crowdfunding offerings. The agency has also alleged that a registered funding portal and its CEO failed to protect investors from the scheme.
In the complaint, which was filed in the U.S. District Court for the Eastern District of Michigan, the agency alleges that Robert Shumake, along with associates Nicole Birch and Willard Jackson, conducted unregistered crowdfunding offerings through two cannabis real estate companies, Transatlantic Real Estate and 420 Real Estate.
The SEC alleges that Shumake and Birch raised a little more than $1M from retail investors through Transatlantic Real Estate, while Shumake and Jackson raised $888K through 420 Real Estate. The three then allegedly spent investor funds on themselves rather than using the funds for the purposes disclosed to investors.
The registered funding portal, truCrowd Inc., and its CEO, Vincent Petrescu, hosted the Transatlantic Real Estate and 420 Real Estate offerings. Petrescu allegedly failed to warn investors about the risk of fraud by staying mum about Shumake's criminal history, a red flag that should have resulted in canceling the offering and returning funds committed by investors.
The move by the SEC is notable for being the first action involving crowdfunding, writes Cadwalader, Wickersham & Taft associate Charles Munn. Raising money for investments through crowdfunding was made legal by the JOBS Act of 2012 and has grown in popularity since then as a funding source for real estate investment.
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