On Monday, the Securities and Exchange Commission filed a complaint in the Eastern District of Michigan against Robert Shumake, Willard Jackson, Nicole Birch, 420 Real Estate, LLC, Vincent Petrescu and truCrowd, Inc. for misleading and fraudulent sale of securities through crowdfunding.
According to the complaint, 420 Real Estate and the now defunct company Transatlantic Real Estate, LLC offered securities on truCrowd’s platform, which were marketed to the public as an opportunity for investors to acquire shares in real estate that would be leased to companies growing cannabis. However, the complaint states that none of the money raised through the crowdfunding was used to acquire or improve cannabis real estate and hundreds of thousands of proceeds from the offers have been diverted for Shamake’s, Jackson’s and Birch’s personal benefit, with none of the investors receiving any return on their investment.
The SEC alleges that Shumake is the driving force behind both 420 Real Estate’s and Transatlantic Real Estate’s offerings, but hid his participation in the scheme to hide his past criminal conviction for a mortgage fraud scheme. The claim purports that Shumake convinced Birch to be the CEO of Transatlantic Real Estate and Jackson to be the CEO of 420 Real Estate in order to hide his criminal past from investors and the SEC.
Allegedly, from September 2018 through May 2019, Shumake and Birch offered and sold securities of Transatlantic Real Estate through truCrowd’s platform, and from May 2019 through June 2020, Shumake and Jackson offered and sold securities of 420 Real Estate again through truCrowd’s platform. The complaint states that Transatlantic Real Estate raised $1,020,100 from approximately 2,000 investors on truCrowd’s website with $358,311 of the offering being diverted to Birch and her firm and $304,709 of the offering being diverted to Shumake and his company. Further, the complaint states that 420 Real Estate raised approximately $888,180 from approximately 2,000 investors with $280,608 of the total offering being diverted to Jackson and $114,029 being diverted to Shumake.
The SEC argues that truCrowd and its CEO Vincent Petrescu acted as gatekeepers by selecting which issuers could use its platform and are therefore responsible for taking measures to reduce the risk of fraud allegedly conducted by its co-defendants. The SEC is suing Petrescu and truCrowd for violating Section 4A(a)(5) of the Securities Act and Rules 300(c)(2).
Additionally, the SEC is suing Shumake, Jackson, Birch and 420 Real Estate for defrauding purchasers of securities under Section 17(a) of the securities act and failure to file registration statements with the SEC under Section 5(a) and (c) of the Securities Act.