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SEC obtains injunction, asset freeze in pre-IPO stock fraud case

On Behalf of | Jul 7, 2023 | Broker Misconduct

The Securities and Exchange Commission announced that it has obtained emergency relief to halt a stock fraud scheme by an unregistered broker-dealer.

The SEC took the action against New York City-based Legend Venture Partners LLC, accusing the firm of orchestrating a scheme involving the sale of interests in private companies that had the potential for a public offering. The commission said Legend’s principals and many of its sales agents previously worked for StraightPath Venture Partners LLC, which was charged in a similar fraud case last year.

Calling it an “alleged copy-cat scheme”, the SEC obtained a preliminary injunction, asset freeze, and other emergency relief against Legend.

The commission’s complaint was filed last month in U.S. District Court for the Southern District of New York. It alleges that from February through October 2022 Legend ran boiler room operations selling securities in Legend Funds, which invested in shares of pre-IPO companies. The rooms were staffed by unregistered sales agents who made cold calls and raised at least $35 million from over 300 investors.

“Among a number of alleged misstatements, Legend told investors that its sales agents did not receive upfront fees or commissions and that the firm only made money if the investor made a profit on an IPO,” the SEC said. “In reality, however, Legend charged exorbitant, undisclosed markups to the prices it paid for the Pre-IPO shares, which averaged almost 60 percent, and reached as high as 105 percent per share, and paid its sales agents and principals more than $12.8 million in upfront compensation.”

The commission went on to allege that as StraightPath was being shut down last year, the scheme was rebranded using StraightPath’s documents and sales agents in order to deceive investors.

Legend was charged with violating the antifraud and certain registration provisions of the federal securities laws. The SEC is seeking permanent injunctive relief, the return of allegedly ill-gotten gains, and a civil penalty.

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