Private Placement Investors to Pay $900,000 for Mis-Reps Made in Subscription Docs
Two investors in several private placements agreed to pay over $900,000 in disgorgement, penalties, and interest in connection with misrepresentations made in subscription documents. The defendants used nominee names and accounts to receive disproportionate interests in certain bank stock conversions. According to the SEC, the defendants made representations that they were purchasing for their own account and not with a view to distribution even though their scheme included a series of nominee purchasers that would distribute the shares to the defendants. The SEC alleges that the defendants violated the anti-fraud rules.
OUR TAKE: It’s not often that the SEC brings action against investors for representations made in subscription documents. Also interesting is that the issuers were not charged for failing to investigate the representations made by the investors, even thought the defendants often participated in these types of offerings.