The SEC has accused a California man of running an at least $37 million Ponzi-like scheme through fictitious investment products.
The regulator filed charges against Satish Appalakutty, 53, along with Lorven Funds and Lorven Advisors LLC, in the United States District Court for the Northern District of California on January 29. The SEC alleges the defendants defrauded at least 100 investors over a five-year period ending in March 2024.
Vistalytics Inc., a software startup founded by Appalakutty, is named as a relief defendant. The SEC claims the company received approximately $4.4 million in misappropriated investor funds.
According to the regulator, Appalakutty lured investors with three types of entirely fictional investment opportunities. The first involved what he called Secondary Public Offering transactions, where he claimed access to shares of publicly traded technology and biopharmaceutical companies at discounted rates through connections with company executives. The SEC alleges no such transactions ever took place and that the Lorven entities had no brokerage accounts to execute trades.
The second involved pre-IPO shares in well-known private technology companies. The third consisted of high-interest promissory notes with no underlying investment activity.
The SEC alleges Appalakutty promised guaranteed annual returns ranging from 8 percent to 62.5 percent while assuring investors their principal was protected. Instead of making any actual investments, the regulator claims, he used new investor money to pay earlier investors in classic Ponzi fashion.
Appalakutty allegedly siphoned more than $6.7 million for personal use, including a down payment on a residence, a new car, and personal travel. Approximately $4.4 million allegedly went to Vistalytics, which the SEC says barely generated $3,000 in revenue throughout the scheme.
The regulator details one example from early June 2023. An investor wired $700,000 to a Lorven Advisors account that had dwindled to approximately $5,000. Within days, Appalakutty allegedly transferred $50,000 to his personal account for credit card payments, $50,000 to Vistalytics for employee payroll and travel expenses, $415,000 to pay returns previously promised to eight existing investors, and approximately $64,000 to buy himself an electric car.
The SEC also claims Appalakutty sent falsified account statements showing fabricated details about share purchases, sale prices, and proceeds for investments that never existed.
According to the filing, Appalakutty met and solicited many of his potential investors through a Hindu temple he attended in the San Francisco Bay Area. He represented himself as an entrepreneur with a purported background as a software engineer at financial technology companies in Silicon Valley.
By early 2024, the SEC alleges, Appalakutty began having difficulty making promised payments and falsely told certain investors that his accounts had been temporarily frozen by the Federal Bureau of Investigation. By May 2024, the defendants had virtually no cash left in their bank accounts.
The SEC charged Appalakutty and the Lorven entities with violations of Section 10(b) of the Securities Exchange Act and Rule 10b-5, as well as Section 17(a) of the Securities Act. The regulator is seeking permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and civil penalties against Appalakutty. The SEC also wants to permanently bar him from acting as or being associated with any investment advisor.
The case highlights familiar red flags for wealth management professionals: promises of guaranteed high returns, principal protection assurances, and investment vehicles offered through entities not described as investment advisors. According to their Statements of Information filed with the California Secretary of State, Lorven Funds was described as a "financial software and services" business and Lorven Advisors as a "software services" business.
The SEC has requested a jury trial. No final determination has been made in the matter.
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