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SEC takes action to halt $130 million fraud targeting Indian American community

On Behalf of | Oct 26, 2023 | Securities and Compliance

The Securities and Exchange Commission announced a series of enforcement actions aimed at stopping an ongoing fraud it said was targeting the Indian American community.

The SEC said it obtained a temporary restraining order, asset freeze, and other emergency relief in connection with a scheme allegedly orchestrated by Nanban Ventures LLC, its three founders Gopala Krishnan (aka GK), Manivannan Shanmugam, and Sakthivel Palani Gounder (collectively, Founders), and three other entities that the Founders control.

In a complaint unsealed in U.S. District Court for the Eastern District of Texas, the SEC said the defendants have raised nearly $130 million since April 2021. According to the allegations, over $89 million was raised from over 350 investors for investments in purported venture capital funds that the Founders managed through Nanban Ventures LLC and more than $39 million was raised from 10 investors that invested directly in the three other entities controlled by the Founders.

The Founders are accused of overstating the profitability of the investments and paid investors at least $17.8 million in fake profits that were actually Ponzi payments, according to regulators. The defendants also allegedly misrepresented Krishnan’s expertise and success using his “GK Strategies” options trading method.

The SEC said that Krishnan claimed in a YouTube video that he achieved returns of “more than a hundred percent,” and Nanban Ventures claimed that Krishnan would manage the funds to generate returns that would “consistently overperform the S&P 500 Index.”  But according to the complaint, the actual trading returns using GK Strategies were usually lower than the returns of the S&P 500, lower than the returns that Krishnan claimed in YouTube videos, and negative on numerous occasions.

“We allege that the defendants engaged in a large-scale affinity fraud that targeted hundreds of investors, largely from the DFW-area Indian American community,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “Through allegedly false promises of unrealistic returns and lies about the success of their investing strategies, the defendants raised nearly $130 million from investors. But in classic Ponzi fashion, the complaint alleges, the defendants used investor money to make fake profit distribution payments, while allegedly siphoning off millions in investors’ funds for themselves. We urge all investors to confirm the credentials of supposed investment professionals and to view investments that advertise outsized returns skeptically.”

The defendants are charged with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Founders and Nanban Ventures were also charged with violating the antifraud provisions of Section 206 of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. The SEC is seeking permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and civil penalties from all the defendants.

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