U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23210 / February 27, 2015
Securities and Exchange Commission v. Gregory W. Gray, Jr., et al., Civil Action No. 15-cv 1465 (S.D.N.Y. February 27, 2015) (LAK)
SEC Halts Ponzi-Like Scheme by Purported Venture Capital Fund Manager in Buffalo
The Securities and Exchange Commission today charged a purported venture capital fund manager in Buffalo, N.Y., with fraudulently using money from three investment funds to pay fictitious returns to investors in a different fund. The SEC obtained an emergency asset freeze to halt the Ponzi-like scheme.
The SEC alleges that Gregory W. Gray, Jr. and his firms Archipel Capital LLC and BIM Management LP solicited money for a fund created to invest in pre-IPO shares of Twitter Inc. that would be delivered to investors with profits once the company went public. Gray raised nearly $5.3 million from investors, which was enough to purchase 230,000 pre-IPO Twitter shares under the terms of the fund's offering documents. However, only 80,000 shares were actually purchased before Twitter went public in November 2013. Faced with increasing pressure from investors to deliver the promised shares and profits, Gray allegedly stalled and stole to make up the shortfall by tapping three other unrelated funds he managed to pay investors in the Twitter-related fund.
According to the SEC's complaint filed in the U.S. District Court for the Southern District of New York, the majority of money used to make these Ponzi-like payments came from one investor who was told he had bought the entirety of a fund supposedly investing in $5 million worth of stock in Uber Technologies Inc. In an attempt to show the investor that the fund had purchased Uber stock while his money actually was being used to pay other investors, Gray fabricated a document using the signature pages of an earlier legitimate stock purchase agreement for shares in a completely different company. The alleged seller of the Uber shares never even owned Uber stock.
The SEC's complaint charges Gray and his firms with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8. Gray is additionally charged with aiding and abetting Exchange Act Section 10(b) and Rule 10b-5 violations. The SEC's complaint seeks, in addition to preliminary relief and a temporary restraining order, permanent injunctions and disgorgement against all defendants and a financial penalty. The SEC's complaint names several relief defendants associated with Archipel Capital and BIM for the purposes of recovering proceeds they received from the fraud.
The SEC's investigation, which is continuing, has been conducted by Hane L. Kim, Victor Suthammanont, Steven G. Rawlings, Elizabeth Baier, George O'Kane, Debbie Chan, and Douglas Smith of the New York Regional Office. The litigation will be led by Nancy A. Brown, Hane Kim, and Victor Suthammanont.