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The SEC is suing a Florida company that raised $ 410 million for IPO-related fraud



(Reuters) – The US Securities and Exchange Commission on Friday sued a Florida company that it said raised at least $ 410 million by fraudulently promising investors access to private companies that had the potential to conduct IPOs.

In a civil lawsuit filed in Manhattan’s federal court, the SEC also requested the freezing of assets against StraightPath Venture Partners LLC and its three founders, to help arrest “ongoing fraud” at the company.

The SEC said the StraightPath raised $ 410 million from more than 2,200 investors in 14 countries between November 2017 and February 2022, when they agreed to stop asking for investment.

U.S. District Judge Lewis Kaplan said at a hearing that he would grant a large portion of the SEC̵

7;s requests temporarily “to preserve the status quo,” pending a new May 26 hearing.

The SEC said that StraightPath presented its investment instruments as a way for ordinary investors to own “highly coveted”, hard-to-reach shares before the IPO of companies such as the plant-based hamburger maker Impossible Foods and the cryptocurrency exchange Kraken.

But the SEC said Jupiter, the Florida-based company often did not own the shares, made “Ponzi-like” payments to some investors and mixed investors’ assets with their own.

It also said that StraightPath charged “unreasonable, secret fees”, which enabled founders Michael Castillero, Francine Lanaia and Brian Martinsen and fund manager Eric Lachow to pay themselves about $ 75 million and their sales agents nearly $ 48 million.

“The defendants have served well,” SEC lawyer Lee Greenwood told Judge Kaplan.

StraightPath says it charges investors a one-time fee of 5% due diligence plus 2% management and 1% cost fees.

StraightPath’s lawyers called the SEC inquiries “completely unjustified”, referring to the company’s years of cooperation with the regulator.

“They are running to court with an incomplete picture,” Samson Enzer, one of the lawyers, told Judge Kaplan.

Lawyers also said that the SEC “apparently prompted” the U.S. Department of Justice to open a major jury trial in the StraightPath, and that freezing assets could make it more difficult for individual defendants to defend themselves against that criminal investigation.

The Ministry of Justice did not immediately respond to a request for comment.

According to the SEC, StraightPath funds hold more than $ 200 million in securities but lack $ 14 million in shares before the IPO for seven companies, including Impossible Foods and Kraken. The SEC is also looking for a recipient for the company.

The case is SEC v. StraightPath Venture Partners LLC et alU.S. District Court, Southern District of New York.


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