SEC Charges Purported Hedge Fund and Manager with Fraudulent and Unregistered Sale of Securities
Litigation Release No. 24279 / September 20, 2018
Securities and Exchange Commission v. Leroy "Lee" Young and Young Capital Management LLC, Civil Action No. 18-cv-2170 (S.D. Cal. 2018)
In the Matter of Michael L. LaPenna, Release No. 33-10553 Admin. Proc. File No. 3-18787 (September 19, 2018)
in the Matter of Phillip R. Grogan, Esq., Release No. 33-10554; Admin. Proc. File No. 3-18788 (September 19, 2018)
On September 19, 2018, the Securities and Exchange Commission charged San Diego County, California resident Leroy "Lee" Young and his firm, Young Capital Management LLC (YCM), for conducting fraudulent sales of unregistered securities.
The SEC's complaint alleges that from January 2013 through December 2017, Young and YCM illegally raised at least $362,000 from at least 32 investors through false promises of high returns on their principal investment. According to the SEC's complaint, Young falsely represented that he would use the investors' money for fees associated with selling bonds or, alternately, for fees associated with launching a hedge fund. The complaint also alleges that Young falsely told investors that he would pay returns of ten times their principal investment in sixty days, generated from the proceeds of bond or hedge fund offerings. In reality, according to the complaint, Young spent the investors' money on personal expenses, and he has not paid returns to investors or repaid their principal investments.
Young and YCM admitted the allegations in the complaint and have consented to the entry of final judgments permanently enjoining them from future violations of the antifraud provisions of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5, and the registration provisions of Section 5(a) and 5(c) of the Securities Act of 1933, and ordering Young to pay disgorgement of $336,450, prejudgment interest of $18,923, and a civil penalty of $336,450. The proposed settlement is subject to Court approval. Based on the anticipated entry of an injunction, Young has agreed to the issuance of an SEC order that permanently bars him from association with any broker, dealer, investment adviser, municipal securities dealer, transfer agent, or nationally recognized statistical rating organization, and from participating in an offering of a penny stock.
The SEC also brought settled administrative proceedings against Michael L. LaPenna and Kentucky-based lawyer Phillip R. Grogan. According to the SEC's orders, LaPenna recruited investors by making material misrepresentations about Young's investment program, and Grogan facilitated the transfer of investor funds through his trust account, giving investors the false and misleading impression that their principal was safely escrowed with an attorney. Without admitting or denying the SEC's findings, LaPenna agreed to the issuance of an order finding that he violated the antifraud provisions of the federal securities laws; imposing a cease-and-desist order; and requiring the payment of disgorgement of $22,500, prejudgment interest of $583, and a $22,500 civil penalty. Without admitting or denying the SEC's findings, Grogan agreed to the issuance of an order finding that he caused Young's antifraud violations; imposing a cease-and-desist order; and requiring the payment of disgorgement of $3,050, prejudgment interest of $248, and a $3,050 civil penalty.
The SEC's investigation was conducted by Emily Shea and supervised by Kevin Guerrero and Antonia Chion.