The Securities Exchange Commission charged a Colorado businessman and six of his companies with orchestrating an allegedly fraudulent investment scheme. According to the SEC’s website, the Denver resident promised several individuals a high return on investment in exchange for providing him with millions of dollars of capital to run his cattle and marijuana businesses.
The funds he received from new investors allegedly went toward paying earlier investors who had provided money in exchange for the profits from his businesses. The indictment alleged that the investors’ funds also paid for his personal expenses such as flying on a private jet and paying medical bills. Reportedly, he received more than $140 million from investors at the peak of his investment solicitation, which he funneled between numerous bank accounts held in the names of his alleged accomplices and six companies he owned.
Complaints of securities fraud are oftentimes difficult to prove because legitimate businesses raise funds from interested parties as a routine activity. Some companies must meet a requirement of registering their investment offerings with the SEC or the Colorado Division of Securities before soliciting investors. Other business owners, however, may find themselves facing complex criminal allegations because their offerings were exempt from state and federal registration requirements.
A securities fraud conviction may require proving that investors were not accredited, as defined by the SEC website, and lacking in sophistication with regard to their understanding of the investment. Prosecutors must also prove beyond a reasonable doubt that an individual intended to defraud or entice investors with an unlawful business scheme. The investors must have provided funds based on a false statement or omission of a material fact.
The business operations must also prove to be fraudulent, and an individual’s defense may include showing legitimate customers, regular revenue streams and ordinary business expenses.