Securities Industry Commentator by Bill Singer Esq

Management of Native American Tribe's Investment Portfolio Prompts FINRA Bar (BrokeAndBroker.com Blog)

CEO Charged With Securities And Bank Fraud In Alleged Scheme To Raise Funds For Digital Advertising Company / CEO Accused of Having Corporate Executive Clients Impersonated to Raise Investments (DOJ Release)

SEC Charges E-Commerce Startup and CEO With Defrauding Investors (SEC Release)

SEC Charges Former Finance Department Employee with Insider Trading (SEC Release)

Frail, Ineffective OCIE Statement About Complex Financial Products (BrokeAndBroker.com Blog)

With respect to the bank fraud charge, the complaint alleges Chapin made false statements to a bank to secure a line of credit that grew from $1 million to $5 million. The line of credit was primarily secured by Benja's account receivables. The account receivables and financial statements Chapin provided to the bank were misstated and false and a majority of the purported revenue was fabricated. Bank records from 2018 to 2020 indicate that Benja was generating almost no revenue from its purported ad placement business and almost all the customers Chapin claimed Benja had were lies. For example, Chapin falsely claimed to have revenue from Nike, Patagonia, and other well-known companies when, in truth, Benja had no relationship with those companies. Chapin used almost the full $5 million line of credit to pay off other creditors and investors, to pay Chapin's credit cards and personal expenses, and to send funds to a personal crypto-currency exchange account.

With respect to wire fraud, the complaint alleges Chapin used an elaborate ruse to convince a venture capital firm in New York to provide Benja $1 million in funding.  Chapin presented the same false account receivables and financial statements to the venture capital firm, and fabricated millions in revenue/account receivables from well-known companies with which Benja never did business.  Chapin also had individuals pose as employees from the well-known companies in order to provide false references about Benja to investors.

With respect to securities fraud, the complaint describes how in December of 2018, Chapin allegedly convinced an investor to purchase $100,000 worth of securities in Benja by representing, among other things, that a venture capitalist would soon be making a $1.5 million investment in the company.  When the investor asked to communicate with the venture capitalist directly, Chapin allegedly created a bogus email address and provided it to the investor.  The investor emailed who he believed was the venture capitalist a series of questions about the shareholder's agreement and the phony email account responded to the questions. After receiving satisfactory answers, the investor purchased the securities.

[F]rom 2018 to 2020, Andrew J. Chapin, the founder and CEO of Benja Inc., told investors that Benja was a successful online advertising platform that generated millions of dollars in revenue from popular consumer clothing brands and retailers. In reality, as the complaint alleges, Benja never did business with the companies. The complaint further alleges that in order to secure investments, Chapin enlisted one or more associates to help induce investments from venture capital investors by impersonating representatives of Benja's purported customers and the supposed founder of a venture capital fund who falsely claimed to have made a large investment in Benja. According to the complaint, Chapin also provided an investor with forged contracts and doctored bank statements.

[I]n August 2018, while employed in the Product Development Department at Dick's, Sullivan purchased Dick's put options after learning of non-public sales information that would later be included in the company's quarterly public earnings announcement. As alleged, after Dick's announced its quarterly earnings on August 29, 2018, its stock price declined more than 9%, and Sullivan sold his entire put option position for profits of $11,500. The complaint also alleges that in November 2019, after Sullivan moved to the Finance Department and became responsible for providing certain sales metrics for Dick's earnings binder, he purchased call options in advance of the company's quarterly earnings announcement. According to the complaint, Dick's stock price increased more than 18% following the announcement, and Sullivan sold his call options for profits of more than $26,000.

• Securities Industry Commentator
• Bill Singer