The SEC files its first enforcement action for Reg CF

The SEC today decided to make a statement against companies considering using Regulation CF for fraudulent offerings, and funding portals that facilitate the fraud. A copy of the complaint can be found here,

On September 20, 2021, the SEC filed in federal court a complaint against sponsors of a marijuana real estate venture, and the TruCrowd funding portal, and its owner. The complaint alleges the sponsors of the issuer hid the existence of a person who acted in the role of an officer throughout the offering process because that person had a criminal record. The complaint also alleges that funds were used in a manner inconsistent with the identified use of proceeds, by diverting them for personal use or for affiliate companies.

Moreover, the funding portal and its CEO are also named defendants in the complaint. According the to SEC’s allegations, the funding portal was aware of the participation of the unnamed officer, yet did not conduct background checks or securities regulatory checks as required by Regulation CF. The complaint also alleges that the funding portal was aware of other concerns about the sponsors and the issuer that raised concerns about the potential for fraud which would require the funding portal to remove the offering.

In addition to disgorgement of ill-gotten gains, the SEC is requesting that each named defendant (including the funding portal and its CEO) be permanently enjoined from violating securities laws—effectively a bar on future participation in securities offerings for at least 10 years.

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