The Commission has continued to bring offering fraud actions which may well be the leading category of enforcement actions for the year. One reason is the difficulty for many investors to distinguish between the good guys and the bad guys. To be sure, in some instances the person running the fraud is a true bad guy – a recidivist who is just out to steal investor capital, for instance. In those cases some quick background research may uncover the potential fraud. In other instances, however, the fraudster may be much more difficult to unmask. That person may, for example, be a legitimate business man who has stepped over the line. And, in still others it may even more difficult, such as when a trusted friend is running the fraud. The Commission’s latest settlement of an offering fraud case presented just this question. SEC v. Feiner, Civil Action No. 19-CV006269 (N.D. Ill.).
Named as defendants are Zvi Feiner, his firm FNR Healthcare, LLC and Erez Baver. Over a three-year period, beginning in 2014, Defendants raised at least $10 million from 62 investors who purchased interests in the firm. Investors were assured the securities were safe and a good investment. The funds were supposed to be invested in one of four related limited liability firms for a good purpose. While portions of the funds were invested as suggested, other portions were misappropriated.
The key to the fraud may well have been the identity of Mr. Feiner. He was a well-regarded rabbi in Chicago. That was undoubtedly the reason Defendants targeted those in the Orthodox Jewish community. The complaint alleged violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is pending. See Lit. Rel. No. 24605 (Sept. 20, 2019).
To resolve the matter Mr. Feiner and his firm each consented to the entry of a permanent injunction based on the sections cited in the complaint. Defendants also agreed to pay disgorgement and prejudgment interest. The amounts will be determined by the Court at a later date. Previously, two entities named as relief defendants and controlled by the individual Defendants, agreed to pay disgorgement and prejudgment interest in the amount of $2,253,734. See Lit. Rel. No. 24848 (July 6, 2020).