SEC Announces Fraud Charges in Startup Company Investment Scheme
Litigation Release No. 24553 / August 6, 2019
Securities and Exchange Commission v. Tanmaya Kabra et al., No. 1:19-cv-11676-FDS (D. Mass. filed August 5, 2019)
The Securities and Exchange Commission today announced an emergency action charging a former Boston, Massachusetts resident and his company with defrauding retail investors by promising to invest their money in start-up companies with high returns, while instead using hundreds of thousands of their funds to make payments to earlier investors and to buy a boat. The SEC seeks an asset freeze and other emergency relief.
According to the SEC's complaint, Tanmaya (a/k/a Tan) Kabra, through LaunchByte.io, LLC, told investors they could make double-digit returns in a matter of months with no risk by providing Kabra with short-term infusions of cash to be invested in one or more startup companies that Launchbyte purportedly had an ownership interest in. In fact, these "investment" opportunities were fabrications, the SEC alleges; upon receiving investor funds, Kabra diverted them almost immediately to his own use-in one instance, to pay for a boat Kabra had agreed to purchase, and, in other instances, to pay back earlier investors in Ponzi-like distributions. The SEC alleges that Kabra repeatedly lied to investors to keep them from discovering his fraud.
The SEC's complaint, filed in the U.S. District Court for the District of Massachusetts, alleges that Kabra and LaunchByte.io violated 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 thereunder and seeks a permanent injunction from future violations, disgorgement of allegedly ill-gotten gains with pre-judgment interest, and civil penalties. The SEC also seeks an asset freeze against both Kabra and LaunchByte.io and a temporary restraining order, among other relief.
In a parallel action, the U.S. Attorney's Office for the District of Massachusetts announced on August 5, 2019 criminal charges against Kabra for wire and bank fraud.
The SEC's investigation is being handled by Emily R. Holness, Alicia M. Reed, Patrick Noone, Amy Gwiazda, and Rachel Hershfang of the Boston Regional office. The SEC appreciates the assistance of the U.S. Attorney's Office for the District of Massachusetts and the Federal Bureau of Investigation.