The US Securities and Exchange Commission (SEC) is suing three individuals for allegedly conducting fraudulent securities offerings, misusing investor funds and engaging in a Ponzi scheme.
In a statement, the SEC announces the filing of charges against Retail Ecommerce Ventures LLC (REV) co-founders Taino Lopez and Alexander Mehr and the firm’s Chief Operating Officer, Maya Burkenroad.
[adinserter block="1"]REV’s primary business involves buying distressed retail companies with name-brand recognition and converting them into e-commerce-only businesses. The firm then serves as the holding company and manager of the retailer brands.
The SEC complaint alleges that from April 2020 to November 2022, the defendants raised approximately $112 million through the fraudulent offer and sale of securities issued by eight REV portfolio companies, namely Brahms, Dress Barn, Franklin Mint, Linens ‘N Things, Modell’s Sporting Goods Online, Pier 1 Imports, RadioShack and Stein Mart.
The defendants sold securities in the form of unsecured notes that promise up to 25% in annualized returns and equity (membership units) with a monthly preferential dividend as high as 2.083% purportedly to raise funds for acquiring the predecessor of and raising additional operating capital for the REV retailer brands.
The SEC says the offerings provided material misstatements on the success and profitability of the company’s business model and retailer brands, as well as the safety of the investors’ investments.
Reads the complaint,
“Contrary to these representations, while some of the REV Retailer Brands generated revenue, none generated any profits.”
The SEC says that at least $5.9 million of the returns that were distributed to investors were, in fact, Ponzi-like payments that were funded by other investors.
“In order to maintain the appearance of a successful business, Defendants started operating a Ponzi scheme by making payments of promised returns to existing investors using either new investors’ funds or investor funds from other REV Retailer Brands.”
The securities watchdog also says the defendants misappropriated approximately $16.1 million in investor funds for Lopez’s and Mehr’s personal use.
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