A recent case involving the Securities and Exchange Commission provides evidence of the SEC’s willingness to use enforcement resources to pursue foreign-based frauds that touch upon US jurisdictional means.

In Litigation Release No. 22673 issued on April 16, 2013, the Securities and Exchange Commission petitioned the District Court for the Northern District of Georgia for injunctive relief against Inter Reef Ltd. and other associated defendants. Service was made according to the Hague Service Convention, but no one entered an appearance on behalf of the defendants. The Commission’s complaint alleges that Inter Reef, located in the United Kingdom, operated a fraudulent securities offering over the internet under the name of “Profitable Sunrise” that was open to investors in the United States. Through its website, promoters and social media, Profitable Sunrise promised investors returns of between 1.6% and 2.7% per business day, compounded daily, on funds invested in various programs that were purportedly to be used to provide loans to businesses at even higher rates. Investors were encouraged to recruit others for the scheme with promises of a percentage of the funds from new investors.

The Court found that the SEC provided sufficient evidence that Inter Reef sold securities through misrepresentations and omissions of material fact and failed to register the securities with the SEC. The court also found that US persons invested in these securities by wiring funds to accounts in the Czech Republic in accordance with Inter Reef’s instructions. The Court granted an injunction against future actions which violate Section 5 of the Securities Act of 1933 or Section 10(b) of the Exchange Act of 1934. The injunction also prohibited the transfer of funds from the defendants’ bank accounts in the Czech Republic. The case is a fairly routine fraud action, except that for its relatively limited connection with the United States. It does, however, indicate the resolve of the SEC to pursue foreign defendants who offer and sell their securities within the United States through electronic means.

See Litigation Release No. 22666 (April 5, 2013) Securities and Exchange Commission v. Inter Reef, Ltd. dba Profitable Sunrise, Melland Company S.R.O., Color Shock S.R.O., Solutions Company S.R.O. and Fortuna-K S.R.O., Civil Action No. 1:13-CV-1104 (U.S. District Court for the Northern District of Georgia).

If you have any questions, please feel free to contact us.

Popular Articles