Man accused of using crowd-funding site to commit securities fraud

Abstract: A novel case is reaching the court, filed by the SEC. The case involves an oil industry, but the novel concept involves the accusations of its using crowd-funding sites to commit securities fraud.

The Securities and Exchange Commission (SEC) is accusing a company of using multiple crowd-funding sites to commit securities fraud. Essentially, according to the agency, investors were solicited to invest in a project funding undeveloped oil and gas wells with Ascenergy. The SEC sought an injunction against Ascenergy, claiming that the company and its CEO used the sites to commit securities fraud by providing false information to investors.

Definition of securities fraud

Securities fraud is committed in the following instances:

Whoever knowingly executes, or attempts to execute, a scheme or artifice

  1. to defraud any person in connection with any commodity for future delivery, or any option on a commodity for future delivery, or any security of an issuer with a class of securities registered under section 12 of the Securities Exchange Act of 1934 or that is required to file reports under section 15(d) of the Securities Exchange Act of 1934, or
  2. to obtain, by means of false or fraudulent pretenses, representation, or promises, any money or property in connection with the purchase or sale of any commodity for future delivery, or any option on a commodity for future delivery, or any security of an issuer with a class of securities registered under section 12 of the Securities Exchange Act of 1934 or that is required to file reports under section 15(d) of the Securities Exchange Act of 1934

The Federal Bureau of Investigation (FBI) defines securities fraud as illegal activities which involve "deception of investors or the manipulation of financial markets." Examples include Ponzi Schemes, Pyramid Schemes, Broker Embezzlement and Hedge Fund Related Fraud.

An example of a current securities fraud case

The current case mentioned above, Securities and Exchange Commission v. Ascenergy LLC and Joseph Gabaldon , was filed by the SEC on October 13, 2015. The SEC requested an "emergency action to stop an ongoing securities offering fraud" claiming that the oil and gas company along with its CEO were soliciting investors through crowd-funding websites to purchase interests in the wells based on material misrepresentations. Ultimately, the agency claims the company is "falsely holding itself out as a credible energy company" that is a "low-risk opportunity" for investors. Instead, the SEC states that the company is a high-risk investment.

The company has received an estimated $5 million in funding from approximately 90 investors. Courthouse News reports that neither the company nor securities were registered with the SEC and that upon filing of the suit the company appears to have shut down and the CEO cannot be located.

Penalties associated with securities fraud violations

In this case, the SEC is requesting the Court freeze the assets of the defendants, order the defendants provide an accounting and pay a civil monetary penalty in addition to other requests. The U.S. District Court granted a preliminary injunction.

A conviction for securities fraud can come with harsh penalties, including a hefty monetary fee and up to 25 years imprisonment. As a result, those facing charges should take the charges seriously. Contact an experienced securities fraud lawyer to discuss your legal options and work to better ensure your rights are protected.

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