SEC Obtains Final Judgments Against Broker and Two Principals Found Liable for Fraud
Litigation Release No. 24663 / November 12, 2019
U.S. Securities and Exchange Commission v. American Growth Funding II, LLC, et al., Civil Action No. 16-cv-00828 (KMW) (S.D.N.Y.)
On October 1, 2019, the Honorable Kimba M. Wood of the United States District Court for the Southern District of New York entered final judgments ordering over $1.6 million in monetary relief against broker-dealer Portfolio Advisors Alliance (PAA), its owner, Howard J. Allen, and its President, Kerri L. Wasserman, following a jury verdict that found them liable for securities fraud.
On May 15, 2019, a jury found that PAA, Allen, and Wasserman made false and misleading statements in the private placement offering of American Growth Funding II, LLC (AGF II). The SEC alleged that AGF II, which raised capital from investors to provide loans to businesses, and its owner, Ralph C. Johnson, promised investors 12 percent annual returns and falsely claimed in offering documents that its financial statements were being audited each year. The SEC further alleged that PAA, Allen, and Wasserman knew the offering documents were inaccurate yet continued using them to solicit sales of AGF II securities. The jury found that PAA, Allen and Wasserman engaged in fraud when soliciting sales of AGF II securities.
The jury returned a verdict in favor of the SEC against the defendants finding them liable of the following violations: PAA and Allen for violations of 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; Allen and Wasserman for aiding and abetting PAA, AGF II and Johnson's violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5; Wasserman for aiding and abetting Allen's violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5; and Allen and Wasserman as control persons of PAA under Section 20(a) of the Exchange Act for PAA's violations of Section 10(b) of the Exchange Act and Rule 10b-5.
The Court's final judgment enjoins the defendants from future violations of the antifraud provisions, orders PAA and Allen to pay jointly $1,059,721 in disgorgement and prejudgment interest, Allen to pay an additional $205,076 in disgorgement and prejudgment interest, and PAA, Allen and Wasserman to pay civil penalties of $200,000, $120,000, and $100,000, respectively.
In addition to PAA, Allen and Wasserman, the SEC's enforcement action filed in February 2016 had also charged AGF II and Johnson. On May 22, 2019, the SEC obtained a final judgment against AGF II and Johnson. AGF II and Johnson consented to the entry of permanent injunctions from future violations of the antifraud provisions of the securities laws, and Johnson agreed to pay $363,669 in disgorgement and prejudgment interest and a $75,000 civil penalty. The SEC's litigation was handled by Alexander Vasilescu, Richard Hong, Jorge Tenreiro, Karen Lee, and Raymond Chan of the SEC's New York Regional Office.