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SEC Takes Action to Halt Alleged $130M Fraud Targeting Indian American Community

SEC Takes Action to Halt Alleged $130M Fraud Targeting Indian American Community. Alternative investments, Indian American community, fraud, emergency relief, SEC, securities and exchange commission, Nanban Ventures, Ponzi

The Securities and Exchange Commission announced on Friday that on Oct. 11, 2023, it obtained a temporary restraining order, an asset freeze, and other emergency relief to halt an alleged ongoing fraud targeting the Indian American community that had raised nearly $130 million since April 2021.

On Nov. 30, 2023, the SEC secured a preliminary injunction, the extension of the asset freeze, and other ancillary relief. The SEC’s complaint, filed on Oct. 5, 2023, in U.S. District Court for the Eastern District of Texas and unsealed on Oct. 16, 2023, alleges that Nanban Ventures LLC, its three founders – Gopala Krishnan, Manivannan Shanmugam, and Sakthivel Palani Gounder – and three other entities that the founders controlled raised more than $89 million from more than 350 investors for investments in purported venture capital funds and more than $39 million from 10 investors for investments directly in the three other entities. The complaint alleges that the founders overstated the profitability of the investments and paid investors at least $17.8 million in fake profits that were Ponzi payments.

The SEC’s complaint further alleges that defendants misrepresented Krishnan’s expertise and success using his eponymous “GK Strategies” options trading method. According to the complaint, Krishnan claimed in a YouTube video that he achieved returns of “more than a hundred percent,” and Nanban Ventures claimed in the private placement memoranda for its venture capital funds that Krishnan would manage the funds to generate returns that would “consistently overperform the S&P 500 Index.” However, the SEC alleges that the actual trading returns using GK Strategies were, with few exceptions, lower than the returns of the S&P 500 index, lower than the percentage returns that Krishnan claimed in YouTube videos, and negative on numerous occasions.

The complaint also alleges that Nanban Ventures and the founders were investment advisers who violated their fiduciary duties by causing the venture capital funds to make undisclosed investments of more than $70 million into companies that the founders controlled. According to the SEC’s complaint, the founders commingled these funds with more than $39 million from at least 10 other investors and then used the commingled funds to, among other things, make Ponzi payments to investors and pay themselves at least $6 million.

The SEC’s complaint charges all defendants with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. It also charges the founders and Nanban Ventures with violating the antifraud provisions of Section 206 of the Investment Advisers Act of 1940 and Rule 206(4)-8. In addition to the emergency relief it has already obtained, the SEC seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and civil penalties from all defendants. The SEC also seeks to bar the founders from serving as officers or directors of a public company.

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