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The SEC is suing a Florida firm that raised $410 million in IPO-related fraud filings

NEW YORK, May 13 (Reuters) – The US Securities and Exchange Commission on Friday sued a Florida firm that had 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 federal court, the SEC also requested an asset freeze against StraightPath Venture Partners LLC and its three founders to help arrest “perpetual fraud” at the firm.

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

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US District Judge Lewis Kaplan said at a hearing that he would temporarily grant many of the SEC’s motions “to maintain the status quo” pending another hearing on May 26.

The SEC said StraightPath is pitching its investment vehicles as a way for ordinary investors to own “highly desirable,” hard-to-find pre-IPO stock in companies like plant-based burger maker Impossible Foods and cryptocurrency exchange Kraken.

But the SEC said the Jupiter, Fla.-based company often didn’t own the stock, made “Ponzi-like” payments to some investors, and commingled the investors’ assets with its own.

It also said StraightPath charged “exorbitant undisclosed fees” that allowed founders Michael Castillero, Francine Lanaia and Brian Martinsen and fund manager Eric Lachow to charge themselves about $75 million and their sales representatives nearly $48 million. to pay dollars.

“Defendants have benefited well,” SEC Attorney Lee Greenwood told Kaplan.

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

StraightPath’s attorneys called the SEC inquiries “completely unwarranted,” citing the firm’s years of cooperation with the regulator.

“You’re walking into court with an incomplete picture,” Samson Enzer, one of the attorneys, told Kaplan.

The attorneys also said that the SEC “apparently requested” the U.S. Department of Justice to open a grand jury investigation into StraightPath and that the asset freeze could make it more difficult for individual defendants to defend themselves against this criminal investigation.

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

According to the SEC, StraightPath funds hold more than $200 million in securities but just under $14 million in premarket stock of seven companies, including Impossible Foods and Kraken. The SEC is also seeking a liquidator for the company.

The case is SEC v StraightPath Venture Partners LLC et al, US District Court, Southern District of New York, No. 22-03897.

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Reporting by Jonathan Stamp in New York; Edited by Matthew Lewis, Barbara Lewis, Chizu Nomiyama and Richard Chang

Our standards: The Thomson Reuters Trust Principles.

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