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SEC Obtains Emergency Relief To Halt Fraud Scheme By Unregistered Broker-Dealer

Recently, the Securities and Exchange Commission made an announcement stating that it has successfully secured a preliminary injunction, asset freeze, and additional urgent measures against Legend Venture Partners LLC, an unregistered broker-dealer located in New York City. This action was taken due to their involvement in a deceitful plan related to the sale of stakes in private companies, which held the promise of becoming publicly traded. Notably, the SEC had previously shut down a comparable

scheme orchestrated by StraightPath Venture Partners LLC last year, and several key individuals from Legend Venture Partners, including its principals and numerous sales agents, had been associated with StraightPath in the past.

The enforcement action began when the SEC filed a complaint alleging Legend had participated in unlawful conduct between February and October 2022. The complaint alleges that Legend operated boiler room operations, where securities issued by the Legend Funds were sold. These funds invested in shares or interests in shares of specific companies before their initial public offerings (IPOs). To carry out their

scheme, Legend employed an extensive network of unregistered sales agents who conducted cold calls, managing to raise over $35 million from over 300 investors. The complaint lists various deceptive statements made by Legend to investors. They falsely claimed that their sales agents did not receive upfront fees or commissions and that the company only profited if investors made a profit on an IPO. However, in reality, Legend imposed undisclosed and excessively high markups on the prices it paid for the pre-IPO shares, averaging nearly 60 percent and occasionally reaching as high as 105 percent per share. Furthermore, Legend compensated its sales agents and principals with upfront payments totaling more than $12.8 million.

“We allege that, just as the SEC was in the process of shutting down StraightPath, the defendant simply rebranded that scheme and used StraightPath’s documents and sales agents to solicit and deceive investors about Legend’s compensation,” said Sheldon L. Pollock, Associate Director of the New York Regional Office. “We filed this emergency action to protect victims of the alleged copy-cat scheme.”

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