Raymond Pirrello, Jr, Founder and Executive of Prior2IPO, Charged in Investment Fraud
On December 6, 2023, a three-count indictment was unsealed in federal court in Brooklyn charging Raymond John Pirrello, Jr., also known as “Ray John,” with securities fraud conspiracy, wire fraud conspiracy and securities fraud relating to a scheme to defraud investors and prospective investors in securities offered by Late Stage Management, LLC through several sales offices, including Prior2IPO which he controlled.
The Indictment accuses Pirrello Jr, together with others, of engaging in a scheme to defraud investors and prospective investors in securities offered by Late Stage, between March 2016 and March 2023, through material misrepresentations and omissions related to, among other things, the existence and amount of fees paid by investors in stock offered by Late Stage and the methodology of setting prices for shares of stock offered by Late Stage.
According to the Indictment, Late Stage was a New Jersey-based manager of investment funds that bought and sold stock issued by privately held companies that anticipated an IPO. Late Stage worked with several sales offices throughout New Jersey, New York and Florida in order to promote the investments. The salespeople used pitches devised by Pirrello and his co-conspirators which consistently touted that the investments carried no upfront fee and claimed that the only time Late Stage profited was on exit, when the company made its IPO or sold to a larger company, in which case it would be entitled to a 20% share of the investor’s profits.
In reality, Late Stage charged substantial fees in the form of markups of stock ranging from 10 to 100% of the stock’s actual per-share price. For example, in and around December 23, 2020, Pirello Jr communicated via text message to his salespeople promoting Late Stage investments that they should sell Green Life Farms stock to investors at $6 with “no upfront fee,” when, in fact, the share price was only $3, reflecting a 100% markup. And, on or about February 24, 2021, Pirrello Jr. communicated via text message to his salespeople to sell Green Life Farms stock to investors at $15 per share when the cost to Late Stage was $10 per share, reflecting a 50% markup.
In total, between approximately March 2019 and July 2022, sales offices working on behalf of Late Stage raised approximately $528 million from investors and diverted approximately $88.6 million in undisclosed upfront markups to Pirrello and his co-conspirators.
If convicted, Pirrello faces a maximum sentence of 20 years’ imprisonment.
On December 6, 2023, the Securities and Exchange Commission (the “SEC”) also filed charges against Raymond J. Pirrello, Jr., as well as 4 individuals (Marcello Follano, Robert Cassino, Anthony DiTucci, Joseph Rivera) and their New Jersey or New York-based companies Prior 2 IPO Inc., Late Stage Asset Management, LLC, Pre IPO Marketing Inc., and JL Rivera Enterprises Ltd.
According to the SEC’s complaint, the defendants employed a nationwide network of unregistered sales agents to raise at least $528 million in unregistered offerings of pre-IPO securities from more than 4,000 investors around the world. The complaint alleges that the defendants falsely told investors that there were no upfront fees on the offerings and that the defendants would only make a profit after the pre-IPO companies went public; however, all investors were charged undisclosed upfront markups, some as high as 150 percent, from which the defendants and their network of unregistered sales agents pocketed more than $88 million.
The SEC further alleges that the charged individuals went to great lengths to conceal the identity of the scheme’s ringleader, Pirrello Jr., from investors and potential employees to hide the fact that he was barred from associating with broker-dealers in an earlier administrative proceeding by the SEC, after a jury found him liable for insider trading in August 2019.
From 1996 to 2016, Pirrello Jr. was a registered representative associated with various broker-dealers registered with the Commission. On July 7, 2016, the SEC filed charges against Pirrello Jr., Thomas W. Avent Jr., and Lawrence Penna alleging that between 2011 and 2012, Avent Jr., who worked as a tax partner with one of the world’s largest accounting firms, tipped off his stock broker, Pirello Jr., about upcoming acquisitions three separate times. Pirrello Jr., in turn, passed the three tips on to his former colleague and long-time friend, Lawrence Penna who arranged to buy stock or call options of all three target companies before the acquisitions were announced to the public. As a result, Penna and his family made over $111,000 in illicit insider trading profits.
Pirrello Jr. compounded his misconduct by using the material nonpublic information he illegally received from Avent to recommend the three target companies to additional associates, who then used the information to buy securities of the targets before the acquisitions were announced.
On August 14, 2019, Pirrello Jr. was found liable for insider trading, and on September 9, 2019, the court entered a final judgment enjoining him from future violations of Sections 10(b) and 14(e) of the Exchange Act, and Rules 10b-5 and 14e-3 thereunder. On September 23, 2019, the SEC barred Pirrello from associating with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, and from participating in any offering of a penny stock, making his associating with the pre-IPO offering companies a violation of his SEC bar.
According to the SEC, the defendants used several measures to hide Pirrello Jr.’s disciplinary history from prospective investors and potential employees, including by identifying him as “Our Founder Raymond John” in pitch decks and emails, referring to him as “Ray John” in other communications, and leaving his name off documents related to Late Stage Funds. The defendants were also evasive and dismissive with investors from Late Stage Funds when they began to press them about Pirrello Jr.’s true identity and past.
The SEC’s complaint, filed in the U.S. District Court for the Eastern District of New York, charges the five individuals and four entities with violations of the antifraud, securities and broker-dealer registration, and other provisions of the federal securities laws. The SEC seeks permanent injunctive relief, disgorgement of ill-gotten gains with pre-judgment interest, and civil penalties against all of the defendants, as well as officer and director bars against Pirrello, Follano, Cassino, DiTucci, and Rivera.
To speak with a Securities Attorney, please contact Brenda Hamilton at 200 E Palmetto Rd, Suite 103, Boca Raton, Florida, (561) 416-8956, or by email at [email protected]. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.
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Brenda Hamilton, Securities Attorney
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