SEC Gets Final Judgements Against Crowdfunding Portal
GOWERCROWD- On January 3, 2021, the SEC announced final judgments against 2 CEOs, Nicole Birch, the former CEO of Transatlantic Real Estate, LLC, a crowdfunding issuer, as well as a judgement against Vincent Petrescu, CEO of SEC-registered crowdfunding portal TruCrowd, Inc.
The initial SEC complaint was filed in the United States District Court for the Eastern District of Michigan on September, 20, 2021. In it, the SEC alleged that Birch, in a scheme directed by Robert Samuel Shumake, engaged in an unregistered, fraudulent crowdfunding offering by soliciting funds through cannabis company Transatlantic Real Estate. In the course of the fraud, Birch and Shumake raised a total of $1,020,100 from numerous retail investors.
According to the SEC, Shumake was able to hide his involvement with the offering despite a prior criminal conviction that might serve to turn prospective investors away. However, with Birch’s assistance, Shumake was able to perpetrate the fraud with Birch serving as the face of the operation. Both parties are alleged to have taken investor funds for their own personal use rather than utilizing funds for the purposes outlined to investors.
TruCrowd’s CEO, Vincent Petrescu, is alleged to have hosted the offering by Transatlantic Real Estate on the TruCrowd platform, as well as hosting 420 Real Estate, LLC, a cannabis company with ties to Willard Jackson, who is the CEO and the sole director of 420 Real Estate, which is also tied to the alleged fraud. Also contained in the complaint is an allegation that Petrescu ignored issues regarding Shumake’s involvement in the offering as well as his criminal history, thus failing to protect investors in the scheme from the risk of fraud.
Birch consented to the entry of the judgement which permanently enjoins her from violating the registration provisions of Section 5 of the Securities Act of 1933 and the antifraud provisions of Section 17(a) of the Securities Act and Sections 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. She did so without admitting or denying the allegations held within the complaint. Similarly, TruCrowd and Petrescu, without admitting or denying the allegations listed in the complaint, consented to the entry of the judgments permanently enjoining them from violating the crowdfunding rules of Section 4A(a)(5) of the Securities Act and Rule 301(c)(2) thereunder.
Under the terms of the judgement, civil penalties of $200,000 will be levied against Birch, $9,700 against Petrescu, and $97,500 against TruCrowd. Birch will face an additional disgorgement including prejudgment interest of $600,712 while TruCrowd will face the same penalty for a total of $129,380. Birch also faces an officer and director bar.
In a separate set of proceedings, as a result of the entry of their consent judgements, Petrescu and Birch also agreed to orders entered by the SEC on December 30, 2021. As a result, Birch is now permanently suspended from acting or appearing before the SEC as an attorney, and is also prohibited from representing clients in SEC matters, including involvement in litigation, examinations, or investigations. Birch is also banned from advising clients about SEC filing obligations or content.
Petrescu faced similar consequences, and was suspended from practicing and appearing before the SEC as an accountant, including any participation in the auditing or financial reporting of public companies. He can reapply for reinstatement after a three year period. Looking forward, the SEC still has ongoing litigation against 420 Real Estate, Shumake, and Jackson, which we’ll cover here at GowerCrowd as developments arise.