US SEC Announces Asset Freeze Against Unregistered Broker-Dealer

The Securities and Exchange Commission (SEC) announced that it obtained asset freezes and other emergency relief against StraightPath Venture Partners LLC, StraightPath Management LLC, Brian K. Martinsen, Michael A. Castillero, Francine A. Lanaia, and Eric D. Lachow to halt ongoing securities violations, including allegedly selling pre-initial public offering (IPO) shares they did not own, pocketing undisclosed fees, and commingling investor funds, resulting in Ponzi scheme-like payments.

The SEC alleges that the defendants, running an unregistered broker-dealer with a vast network of sales agents, raised at least $410 million from more than 2,200 investors from November 2017 through February 2022.  

The SEC also alleges that the defendants repeatedly told investors that each investment would be kept separate and that they were charging no upfront fees, but the defendants freely commingled investor funds, paid themselves more than $75 million, and paid their sales agents nearly $48 million from illegal, undisclosed markups on the pre-IPO shares that were, in some cases, as high as 100 percent.  

The SEC alleges that a share deficit exists of at least $14 million across the funds. The defendants also allegedly concealed from investors that two of the three founders, Castillero and Lanaia, ran the funds despite being barred from the brokerage industry.

"We allege that the defendants deceived investors about the pre-IPO shares they held, how much they were charging in fees, and who was controlling the business—all while paying themselves more than $75 million,"said Lara S. Mehraban, Acting Director of the New York Regional Office."We filed this emergency action to stop the ongoing fraud and to preserve assets for investors."

The SEC's complaint, filed in federal district court in Manhattan, charges the defendants with violating antifraud and other provisions of the federal securities laws. The complaint seeks permanent injunctive relief, return of allegedly ill-gotten gains, and civil penalties. The SEC obtained a court order to freeze the assets of Martinsen, Castillero, Lanaia, StraightPath Venture Partners, and StraightPath Management.