SEC Charges Advisory Firm La Mancha and Its Owner With Fraud
The U.S. Securities and Exchange Commission charged David Kushner, a resident of Boca Raton, Fla., and his company La Mancha Funding Corp. with defrauding nearly two dozen investors out of approximately $2.1 million from September 2018 to April 2021 in a series of private securities offerings. Kushner is La Mancha’s president and sole owner.
As alleged in the SEC’s complaint, 59-year-old Kushner and La Mancha raised approximately $10.5 million from investors through at least 33 limited liability companies for the purpose of investing in short-term loans made to, among others, sports agents and professional athletes, including current and former NFL players, i.e., the borrowers. However, Kushner and La Mancha allegedly made material misrepresentations to the investors about what would be done with the investors’ funds, breaching their fiduciary duties as investment advisers and secretly taking hundreds of thousands of dollars in undisclosed origination and broker fees for themselves out of the intended loan proceeds.
Some of the investors contacted Kushner after they had not received the principal payments they expected in connection with their purchase of the LLCs’ membership interests. Kushner allegedly lied to these investors, telling certain investors that borrowers had not made principal payments on their loans when, in fact, the borrowers had already made principal payments to La Mancha. And Kushner sent at least one investor a fabricated account statement that purported to corroborate Kushner’s lies about having extended the due date for the principal payment on that loan.
The complaint alleges that the defendants also misappropriated nearly $1.5 million of loan repayments that, according to the terms of the LLC operating agreements, were supposed to go back to the investors.
Kushner used those and other misappropriated funds, including the undisclosed fees, to pay personal expenses, such as payments for personal credit card bills ($130,000), child’s college tuition and child’s apartment rental ($248,000), country club dues ($60,000), a Mercedes Benz and Jeep ($76,000), a rental home in the Hamptons ($172,000), at least $300,000 in cashier’s checks Kushner made payable to himself or La Mancha, at least $55,000 that Kushner wired to a personal bank account, and approximately $25,000 in payments to a diamond wholesaler.
“As we allege, Kushner lied to investors and simply stole the money that would have given them at least some of the investment returns he had promised,” said Sheldon L. Pollock, associate director of the SEC’s New York office. “The [SEC] continues to scrutinize private investment opportunities where defendants fail to follow through on their commitments to investors.”
The SEC’s complaint, filed in the U.S. District Court for the Southern District of New York, charges Kushner and La Mancha with violating the antifraud provisions of the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Advisers Act of 1940. The complaint seeks a permanent injunction, disgorgement plus prejudgment interest, and civil monetary penalties, as well as a conduct-based injunction and an officer-and-director bar against Kushner.
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