SEC accuses CEO of secretly funneling stock to family

The SEC alleges a company CEO secretly issued millions of shares to family and friends - then buried the trail.

The Securities and Exchange Commission filed a complaint on October 2 against David Reichman, former CEO and chairman of Global Tech Industries Group Inc., alleging he spent years handing out company stock to relatives and associates under false pretenses - and then covered it up.

The complaint, filed in the US District Court for the Southern District of New York, alleges Reichman caused Global Tech to issue more than 32 million shares between 2016 and 2019 to a group the SEC calls "Share Recipients" - his daughter, his ex-wife, his girlfriend, and an affiliated entity, among others. Each time, the shares were described in company filings as payment "for services," according to the complaint. The SEC says none of the recipients actually did any work for the company.

Global Tech was a company in name only. Its stock traded on OTC Link ATS, but during the years the complaint covers, it had little revenue, no real operations, and just two employees - Reichman and the former company president. Its 2023 annual report showed an accumulated deficit of $346 million, according to the filing.

The SEC paints a picture of a scheme with several moving parts.

Reichman allegedly caused Global Tech to issue nine million shares directly to his daughter and six million shares to DOT8 Inc., a Wyoming corporation the SEC says was affiliated with him and later controlled by his daughter. All were reported in annual filings as issued "for services," the complaint states.

One detail stands out. The complaint says that nearly a year after one of the DOT8 share issuances, the former Global Tech president emailed Reichman a backdated engagement letter for services DOT8 had supposedly provided. Her note, according to the filing: "Trying to get creative here."

The SEC also alleges Reichman set up a kickback arrangement. He allegedly caused Global Tech to issue 940,000 shares to an associate identified as Individual E. When those shares were sold, approximately 90% of the proceeds - around $1.4 million - went to an entity Reichman controlled, according to the complaint.

Then there is the concealment. The complaint says Reichman actively hid his daughter's beneficial ownership of approximately 6.9% of Global Tech stock. When the company filed an S-1 registration statement for a warrant offering in August 2021 - an offering that raised around $3.3 million - the SEC alleges Reichman directed the former company president to delete his daughter's name from a list of beneficial owners. He also allegedly used his daughter's electronic signature to temporarily move her shares to book entry form, removing her from the shareholder list. The SEC says she did not know about these transfers.

The filing goes further. The SEC alleges Reichman authorized selling 10 million shares from a profit-sharing trust set up for company employees, pocketed $1.8 million of the $2 million in proceeds, and then kept signing annual filings that said those shares were still in the trust and had not been "committed for release."

On top of all that, the SEC says Reichman repeatedly filed late ownership-change reports for his own stock sales between October 2022 and February 2024.

The numbers are striking. According to the complaint, Reichman's daughter and DOT8 generated approximately $8 million in stock sale proceeds. Reichman personally received approximately $1 million through the Individual E arrangement and approximately $2.5 million that the SEC says he transferred from Global Tech's bank account to his own following the August 2021 offering.

The SEC also named Reichman's daughter and a trust holding the deed to her home as relief defendants. The complaint alleges approximately $2.5 million of the proceeds went toward buying the property.

The Commission is seeking disgorgement of profits, civil penalties, a permanent ban on serving as an officer or director of a public company, and a bar on participating in securities issuances.

In a separate development, a Nevada state court appointed a receiver for Global Tech in September 2024 after shareholders brought their own action. The receiver removed the entire management team, including Reichman, according to the complaint.

The allegations in the SEC's complaint have not been tested, no court has ruled on the merits.