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Enforcement

Unregistered Brokers and Companies Face SEC Charges in $525 Million Pre-IPO Fraud Scandal

The SEC has taken action against five unregistered brokers and four companies based in New Jersey and New York relating their alleged involvement in a widespread fraudulent scheme related to investments in pre-initial public offering companies (pre-IPO). According to the SEC the scheme has had far-reaching consequences, resulting in over $525 million in unregistered offerings, with the defendants pocketing more than $88 million in undisclosed fees.

The Allegations and Deceptive Practices in Pre-IPO Offerings

The SEC’s complaint alleges that Raymond J. Pirrello, Jr., Marcello Follano, Robert Cassino, Anthony DiTucci, Joseph Rivera, and their respective companies, Prior 2 IPO Inc., Late Stage Asset Management, LLC, Pre IPO Marketing Inc., and JL Rivera Enterprises Ltd., orchestrated a scheme involving a network of unregistered sales agents. This network was used to raise substantial sums, totaling at least $528 million, through unregistered offerings of pre-IPO securities. These offerings targeted more than 4,000 investors worldwide.

Central to the allegations is the claim that the defendants made false representations to investors. They assured potential investors that there would be no upfront fees associated with these offerings and that their profits would only materialize after the pre-IPO companies went public. However, the truth was far from their assurances. Investors were subjected to undisclosed upfront markups, some as high as 150 percent. These markups led to the defendants and their network of unregistered sales agents pocketing more than $88 million in illicit gains.

The SEC’s Response

Sheldon L. Pollock, Associate Regional Director in the New York Regional Office of the SEC, emphasized the severity of the allegations, stating, “As alleged in our complaint, the defendants sold unregistered securities to investors based on false promises of no upfront fees when they siphoned off tens of millions from such undisclosed fees for themselves.” This clear deception has prompted the SEC to closely examine the sale of unregistered, pre-IPO investments to retail investors.

Concealing the Ringleader

The SEC also alleges that the defendants went to great lengths to hide the identity of one of the scheme’s ringleaders, Raymond J. Pirrello, Jr. Pirrello had been previously barred from associating with broker-dealers in an earlier administrative proceeding by the SEC. He was found liable for insider trading in August 2019 by a jury. This deliberate concealment raises further concerns about the defendants’ intentions and their commitment to acting within the bounds of the law.

Legal Consequences

The SEC’s complaint, filed in the U.S. District Court for the Eastern District of New York, outlines multiple charges against the five individuals and four entities. These charges encompass violations of antifraud regulations, securities laws, broker-dealer registration requirements, and other federal securities laws. The SEC seeks significant legal remedies, including permanent injunctive relief, disgorgement of ill-gotten gains, pre-judgment interest, and civil penalties against all defendants involved. Additionally, the SEC is pursuing officer and director bars against Raymond J. Pirrello, Jr., Marcello Follano, Robert Cassino, Anthony DiTucci, and Joseph Rivera.

SEC Press Release

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The Securities Lawyer