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In First-Ever Case, SEC Charges Crowdfunding Site With Allegedly Selling Unregistered Securities

The Securities and Exchange Commission (SEC) has charged three people along with an issuer with conducting a fraud scheme to sell almost $2 million in unregistered securities in two crowdfunding offerings connected to cannabis and hemp companies, according to a press release.

The complaint says Robert Shumake, along with associates Nicole Birch and Willard Jackson, made fake and unregistered crowdfunding offerings through two such companies.

The release lists the companies as Transatlantic Real Estate LLC and 420 Real Estate LLC.

And the complaint says Shumake and Birch raised $1.02 million from retail investors through Transatlantic, while Shumake and Jackson raised $888,000 through 420.

Allegedly, the defendants used the investor funds for “personal use” rather than for what they’d promised investors they’d do.

And in addition, the funding portal TruCrowd, along with CEO Vincent Petrescu, hosted the offerings and “alleged[ly] failed to address red flags” such as Shumake’s criminal history and involvement in the crowdfunding. This entity reportedly failed to protect investors from the risk of fraud.

“Crowdfunding offerings enable issuers to cast a wide net for potential investors, emphasizing the importance of full and honest disclosure,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “As companies continue to raise funds through crowdfunding offerings, we will hold issuers, gatekeepers, and individuals accountable and enforce the protections in place for all investors.”

In other SEC news, Chairman Gary Gensler told lawmakers on Capitol Hill that while there were rules needed for the burgeoning cryptocurrency market, the rules should also be made in such a way as to not kneecap innovation.

Read more: SEC Chair Gensler Tells Capitol Hill That Cryptos, Stock Trading Platforms Need Updated Regulations

He said that there’s sometimes a need to update the rules in response to new tech – such as when the internet arrived and allowed buyers and sellers to meet in new trading venues. That might reflect the need now for more stringent rules against online stock trading due to Robinhood’s ubiquitousness.

He said crypto could see changes in terms of crypto finance, issuance, trading, or lending, he believes, and regulators would need to update the rules for changing times yet again, with the massive amounts of fraud being one point of concern.

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