SEC obtains asset freeze orders against StraightPath Venture Partners
The Securities and Exchange Commission (SEC) today announced that it obtained asset freezes and other emergency relief against StraightPath Venture Partners LLC, StraightPath Management LLC, Brian K. Martinsen, Michael A. Castillero, Francine A. Lanaia, and Eric D. Lachow to halt ongoing securities violations, including allegedly selling pre-initial public offering (IPO) shares they did not own, pocketing undisclosed fees, and commingling investor funds, resulting in Ponzi scheme-like payments. The relief arose from fraud and registration charges filed by the SEC.
The SEC alleges that the defendants, running an unregistered broker-dealer with a vast network of sales agents, raised at least $410 million from more than 2,200 investors from November 2017 through February 2022. The SEC also alleges that the defendants repeatedly told investors that each investment would be kept separate and that they were charging no upfront fees, but the defendants freely commingled investor funds, paid themselves more than $75 million, and paid their sales agents nearly $48 million from illegal, undisclosed markups on the pre-IPO shares that were, in some cases, as high as 100 percent.
The SEC alleges that a share deficit exists of at least $14 million across the funds.
The defendants also allegedly concealed from investors that two of the three founders, Castillero and Lanaia, ran the funds despite being barred from the brokerage industry. When SEC staff sought copies of the emails sent by the defendants’ sales agents during its investigation, rather than producing them, Castillero and Martinsen allegedly deleted them from their servers and texted that “an a***hole regulator would have a field day” with a particular e-mail.
The SEC’s complaint, filed in federal district court in Manhattan, charges the defendants with violating antifraud and other provisions of the federal securities laws.
The complaint seeks permanent injunctive relief, return of allegedly ill-gotten gains, and civil penalties. The SEC obtained a court order to freeze the assets of Martinsen, Castillero, Lanaia, StraightPath Venture Partners, and StraightPath Management. The order further temporarily enjoins the defendants from violating these provisions of the federal securities laws and orders them not to destroy any additional relevant documents.