New York Attorney General Barbara D. Underwood recently announced the conviction and sentencing of Freevi Corp. (d/b/a Sungame Corp.) and its former Chief Executive Officer, both having pleaded guilty to grand larceny and securities fraud in connection with a scheme to steal millions from investors by soliciting investments in computer tablets. Both were sentenced to pay $768,000 in restitution and to execute over $2,100,000 in judgments. Both were also permanently banned from engaging in the distribution, sale or purchase of any securities or commodities within or from New York State.
“The defendants in this case ran a massive securities fraud scheme, lining their own pockets by scamming New Yorkers out of millions. Today’s sentencing should send a clear message: if you defraud New Yorkers, we will catch you and we will prosecute you,” said Attorney General Underwood.
According to the prosecution, starting in or around January 2014 and continuing through early 2017, the former CEO induced unwitting investors into agreeing to purchase tablets at $1,000 per unit, with the promise that the full purchase price would be returned in the form of a no-risk rebate following purchase. In addition, the former CEO incentivized investors by offering them an “education grant” consisting of half of the purchase price, as well as the opportunity to allow the company to buy back the tablets in order to resell them and remit the profits to the investors.
According to the press release, the former CEO represented that every $1,000 tablet purchase would entitle an investor to a full return of their investment, an “education grant” and the option to either keep the tablet or receive the re-sale profit.
According to the OAG press release, many investors failed to receive the return of investment capital or profit. Instead, according to the OAG, their investment capital was used by the former CEO for repaying prior investors, paying his personal and corporate liabilities, artificially inflating the company’s reported corporate earnings and funding the scheme.
According to the OAG, the scheme was quite profitable, bringing in hundreds of thousands of dollars from a single victim in 2014 alone. The former CEO was indicted by a Nassau County grand jury on two counts of grand larceny in the second degree, one count of securities fraud, one count of forgery, and one count of criminal possession of a forged instrument.
In February, the former CEO was apparently apprehended in California by U.S. Customs and Border Patrol personnel. Subsequently, the Attorney General’s investigation uncovered additional victims that reportedly lost millions of dollars. In April the company and its former CEO were charged via a felony complaint with an additional count of securities fraud.
Both were sentenced to pay $768,000 in restitution to the victims of their crimes, and precluded both defendants from directly or indirectly soliciting, inducing, or promoting the distribution, sale or purchase of any securities or commodities within or from New York State.
Both also executed over $2M in civil judgments against themselves in favor of the victims. If the former CEO fails to pay the court-ordered restitution or otherwise violates the terms of his plea agreement, he could be re-sentenced to incarceration.
If you are interested in implementing preventative compliance controls or if you are the subject of a regulatory investigation, contact a state attorney general defense lawyer at [email protected] or at (212) 756-8777.
Informational purposes only. Not legal advice. Previous case results do not guarantee similar future result. Hinch Newman LLP | 40 Wall St., 35th Floor, New York, NY 10005 | (212) 756-8777