SEC Charges Former StraightPath and Legend Boiler Room Operators With Defrauding Retail Investors
The U.S. Securities and Exchange Commission charged New York residents Mario Gogliormella, Steven Lacaj, and Karim Ibrahim with fraud for selling unregistered membership interests in LLCs that purported to invest in shares of pre-IPO companies – first on behalf of StraightPath Venture Partners LLC, and later on behalf of Legend Venture Partners LLC.
Each company was the subject of emergency actions by the SEC in May 2022 and June 2023, respectively. Both StraightPath and Legend are now under court-ordered receiverships.
In this new action, the SEC’s complaint alleges that between 2019 to 2022, Gogliormella, Lacaj, and Karim Ibrahim directed an unregistered sales force of more than 50 callers in boiler rooms – call centers that typically use high-pressure sales tactics and intensive, high-volume sales campaigns to induce investors to buy securities – to pressure investors into making investments without telling them that the shares had been substantially marked up-between approximately 19% and 105% on average above the prices that StraightPath or Legend had paid for the underlying shares.
From approximately June 2019 to February 2022, the StraightPath period, the defendants and their unregistered sales force allegedly sold pre-IPO shares on behalf of StraightPath and raised at least $149 million from over 1,000 investors located around the country and internationally. Then, just as StraightPath was under the scrutiny of the SEC investigation that resulted in an enforcement action to shut down its operations, defendants launched Legend to rebrand their fraud. From February through October 2022, the Legend period, the defendants and their unregistered sales force allegedly raised over $35 million from more than 300 investors around the country and internationally, a majority of whom had earlier invested with StraightPath.
According to the complaint, at the defendants’ direction, their sales force typically cold-called hundreds of investors daily. Using sales scripts provided by defendants, the unregistered sales agents told investors that StraightPath or Legend would charge only a 20% fee on back-end profits (if any) earned after the applicable pre-IPO company went public. This led investors to believe that their interests were fully aligned with defendants’ interests.
In fact, however, the defendants profited handsomely upfront and allegedly pocketed more than $45 million in fees from unsuspecting investors. The defendants allegedly used investor proceeds to fund lavish lifestyles and make many luxury purchases, including trips on private jets, Rolex and Audemars Piguet watches, Bentley and Rolls Royce cars, and luxury residences in Long Island, N.Y., and Miami.
As a result of defendants’ alleged fraud, investors suffered substantial pecuniary harm. Investors expended significant funds acquiring interests in the StraightPath and Legend funds based on the material misrepresentations. In many instances, the pre-IPO companies at issue have not gone public even years later. As a result, many investors have recouped none of their investments.
In connection with their fraudulent scheme, defendants also violated the securities and broker-dealer registration provisions of the federal securities laws. Specifically, none of the offers or sales of interests in the StraightPath or Legend funds were registered with the SEC and no exemption applied. Furthermore, defendants and their sales force, all of whom received transaction-based compensation, acted as brokers without being registered as broker-dealers or associated with registered broker-dealers.
The SEC’s complaint, filed in federal court for the Southern District of New York, charges Gogliormella, Lacaj, and Karim Ibrahim with violating Sections 5(a), 5(c), and 17(a)(1) and (3) of the Securities Act of 1933; Sections 15(a) and 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(a) and (c) thereunder; and Sections 206(1), 206(2), 206(3), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder; Lacaj and Karim Ibrahim with violating Section 17(a)(2) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5(b) thereunder; Gogliormella with control person liability under Exchange Act Section 20(a) for L&G Capital Corp.’s and Legend’s violations of Section 10(b) of the Exchange Act and Rule 10b-5(b); and all defendants with aiding-and-abetting StraightPath’s and Legend’s violations of Sections 5(a), 5(c), and 17(a) of the Securities Act and of Sections 15(a) and 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Legend’s violations of Sections 206(1), 206(2), 206(3), and 206(4) of the Advisers Act and Rule 206(4)-8 thereunder. The complaint seeks permanent injunctive relief, return of allegedly ill-gotten gains, and civil penalties. The SEC also charged Adam Ibrahim, Karim Ibrahim’s brother, as a relief defendant.
In a parallel action, the U.S. Attorney’s Office for the Southern District of New York unsealed an indictment charging Gogliormella, Lacaj, and Karim Ibrahim with securities fraud, among other offenses, in connection with their work for StraightPath and Legend.
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