By Anne Sherry, J.D.
An amended SEC complaint charges the perpetrators of an offering fraud involving Jackie Robinson memorabilia with unlawfully prohibiting investors from reporting the wrongdoing.
The SEC amended a complaint against Collectors Cafe and its CEO to add allegations that they unlawfully conditioned the return of investor funds on investors’ agreement not to blow the whistle. In May, the SEC charged the online auction portal with conducting an offering fraud that vastly overstated the defendants’ interest in two contracts signed by Jackie Robinson (SEC v. Collector’s Coffee, Inc., November 4, 2019).
Chilling of reporting. According to the amended complaint, the defendants on at least two occasions conditioned the return of investor funds on the signing of confidentiality clauses that prohibited reporting to governmental enforcement agencies. One of these instances involved the settlement of a lawsuit brought by two investors who had put in a combined $1.5 million. The defendants agreed to return the principal investment, and the investors agreed not to "initiate" communications with the SEC or other agencies. The agreement specifically did not prevent them from responding to a subpoena.
The SEC did reach out to the two investors; their counsel responded that a confidentiality agreement barred his clients from speaking to SEC staff voluntarily. After the investors responded to SEC subpoenas, the defendants sued them for breaching the confidentiality provision. The defendants then used that lawsuit to intimidate other investors. In a June 2019 investor phone call, the Collectors Cafe CEO brought up the lawsuit repeatedly, touted the monetary damages that it claimed, and said that he intended to amend the lawsuit to include additional defendants.
The SEC alleges that these tactics violate Exchange Act Rule 21F-17, which bars any person from "imped[ing] an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement." The agency has enforced this provision on several prior occasions beginning in 2015. Jane Norberg, Chief of the SEC’s Office of the Whistleblower, said in a statement that the whistleblower provisions "broadly protect not just employees, but anyone who seeks to report potential securities law violations to the Commission."
Additional misrepresentations. The amended complaint also raises additional allegations about events occurring after the initial filing. During that June 2019 investor call, the CEO attempted to reassure investors by calling the SEC’s complaint "all falsehoods, all lies, all bullshit" and stated that the agency intentionally declined to subpoena early bank records that would show the CEO’s loans to the company. These statements created the false implication that the CEO’s personal use of company funds was legitimate because it amounted to partial loan repayment, when no such loans ever existed. The SEC also alleges that the defendants continued to misrepresent their business on the investor call, including reiterating a false claim that "hundreds of dealers" had committed to placing inventory on the Collector’s Cafe auction site.
The case is No. 19-cv-04355.
Attorneys: Gregory Alan Kasper for the SEC.
Companies: Collector's Coffee Inc. d/b/a Collectors Cafe
MainStory: TopStory DoddFrankAct Enforcement FraudManipulation WhistleblowerNews NewYorkNews
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