SEC alleges pre-IPO share sales fraud 'like a Hollywood movie'  

Three men have been charged by the Securities and Exchange Commission over allegations of fraudulent sales of shares in pre-IPO companies.

The agency says that the men and their unregistered boiler room sales force of more than 50 people pocketed $45 million in fees by pressuring investors to buy shares without revealing that the price had been marked up by between 19% and 105%. Adam Ibrahim, Karim Ibrahim’s brother has been charged as a relief defendant.

New York based Mario Gogliormella, Steven Lacaj, and Karim Ibrahim are accused of selling the investments on behalf of StraightPath Venture Partners LLC, the subject of the Commission’s emergency action in May 2022, and, later, on behalf of Legend Venture Partners LLC, the subject of the Commission’s emergency action in June 2023. Both firms are now in court-ordered receiverships.

“We allege that the fraud in this case is like a Hollywood movie where the defendants ran boiler rooms using scripts they referred to as the ‘Bible,’ engaged in high-pressure sales tactics, and employed outright falsehoods to defraud investors,” said Sheldon L. Pollock, Associate Director of the New York Regional Office. “After the SEC shut them down the first time, they simply rebranded their outfit, and today through our action we are seeking to ensure that they are held accountable for enticing and lying to investors.”

Investigations into the allegations are still ongoing and litigation is being prepared. The U.S. Attorney’s Office for the Southern District of New York today unsealed an indictment charging Gogliormella, Lacaj, and Karim Ibrahim with securities fraud, among other offenses, in connection with their work for StraightPath and Legend.

PRE-IPO INVESTMENT SCAMS

While the SEC’s allegations are yet to be proven in court, the agency has issued a general warning about the risks of investing in pre-IPO share sales.

The SEC’s Office of Investor Education and Advocacy says that staff continue to receive complaints relating to scams that may be promoted online, on the phone, or person, frequently with the promise of an opportunity to make high returns by getting on board before the companies go public.

“But investing at the pre-IPO stage can involve significant risk for investors, including the risk that you could lose your entire investment,” the OIEA Investor Alert states, noting that these investments are not registered with the SEC and may potentially be illegal. “The early-stage company may never be successful, and the share price of the stock may never appreciate in value. In addition, the company may never go public, a market for the company’s shares may never develop, and investors may be unable to resell their shares.”