SEC Charges American Growth Funding II with Fraud
On February 3, 2016, the Securities and Exchange Commission (SEC) charged a lending company in Manhattan, American Growth Funding II LLC and its owner, Ralph Johnson, with repeatedly lying to investors who purchased high-yield securities. The SEC also charged the brokerage firm that acted as the placement agent, Portfolio Advisors Alliance, and its president Kerri Wasserman and owner Howard Allen.
American Growth Funding II raises capital from investors to provide loans to businesses. The SEC alleges that American Growth Funding II and Ralph Johnson promised investors 12% annual returns and falsely claimed its financial statements were being audited each year. The SEC’s fraud complaint also claims that American Growth Funding II made misrepresentations in offering documents about its management and concealed details about deteriorating loan values that could imperil full payment of the promised returns to investors. Portfolio Advisors Alliance, Howard Allen, and Kerri Wasserman are alleged to have known the offering documents were inaccurate, yet continued using them to solicit sales of American Growth Funding II securities.
In its fraud complaint, the SEC alleges that:
- American Growth Funding II raised approximately $8.6 million from investors from March 2011 to December 2013 in a private placement offering.
- The company represented that its financial statements had been audited and would continue to be audited each fiscal year in its offering documents. Johnson knew this statement was false. No audit of American Growth Funding II’s financials occurred until 2014.
- The offering documents purported that American Growth Funding II was governed by a Board of Managers comprised of Johnson and two other individuals when, in reality, the two individuals never agreed to serve in any managerial capacity.
- Johnson caused American Growth Funding II to send out monthly account statements to investors that concealed the precariousness of its business. The company failed to disclose that it could not have possibly paid investors their stated account balances because the majority of American Growth Funding II’s loans were likely uncollectible at the time.
- While Portfolio Advisors Alliance acted as the placement agent, Allen became aware by no later than June 2012 that American Growth Funding II’s offering documents were not accurate. But he continued using them to solicit investors without informing them the financial statements were unaudited.
- Allen informed Wasserman that American Growth Funding II’s offering documents contained false information, but Wasserman took no action and the firm’s brokers continued using misleading documents to solicit investors.
The SEC’s complaint charges American Growth Funding II, Portfolio Advisors Alliance, Johnson, and Allen with violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The complaint also charges Johnson, Allen, and Wasserman with aiding and abetting and control person liability.
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