Securities Regulation Daily Securities industry professional used shell company in $95 million fraud
Monday, March 28, 2016

Securities industry professional used shell company in $95 million fraud

By Amanda Maine, J.D.

The SEC and the Manhattan U.S. Attorney charged a partner at a New York financial services firm with fraud. The partner allegedly took steps such as creating fake email addresses, setting up misleading domain names, and inventing fictional financiers in furtherance of his scheme (SEC v. Caspersen, March 28, 2016).

“Irving Place” entity. The defendant, a partner at a major financial advisory firm in New York, founded a shell company which he called Irving Place III SPV (IPIII) in 2015. According to the SEC, the defendant named his company so others would believe it was affiliated with Irving Place Capital Partners III SPV, which is a legitimate private equity fund and not associated with the defendant in any way. Unlike the legitimate fund bearing the name Irving Place, the defendant’s shell company had no legitimate business, and instead exists only as a vehicle for soliciting investors. Its only asset is a bank account controlled by the defendant.

Fraudulent solicitations. In October 2015, the defendant solicited a $25 million investment from a non-profit charitable affiliate of an investment limited partnership, according to the SEC. The defendant did not disclose to the investor that he was not associated with Irving Place Capital Partners or that the defendant had sole control over IPIII and that it had no legitimate business. The defendant transferred the investment funds into IPIII’s account, which he controlled, and took control of the money for his personal use, including making largely unprofitable securities transactions.

The defendant also allegedly tried to solicit additional $20 million and $50 million investments from the original investor and another potential investor while making the same misrepresentations. The original investor by this time had developed suspicions about the investments and refused to invest more money with the defendant, as well as demanding to redeem the first $25 million investment.

Deceptive practices. The criminal complaint against the defendant detailed the steps he took in furtherance of his scheme. These steps included creating a fake email address for a supposed signatory to the special purpose vehicle (SPV) with a domain name that was not associated with the purported signatory’s actual firm. This individual was fictitious, the government alleged, and the domain name had been registered a mere 20 minutes after the first investor asked to speak with the individual via telephone call. The defendant also represented that his own family had provided $5 million to invest in the SPV, which was false, according to the government.

Charges. The SEC charged the defendant and his shell company with securities fraud and is seeking disgorgement, penalties, injunctions, and other relief. The criminal complaint charges the defendant with one count each of securities fraud and wire fraud. Each count carries a maximum term of 20 years in prison and a fine of $5 million or twice the gross gain or loss from the offense.

The case is No. 16-cv-2249.

Attorneys: James K. Hanson for the SEC.

Companies: Irving Place III SPV, LLC.

MainStory: TopStory FraudManipulation Enforcement NewYorkNews

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