SEC Halts Boiler Room Scheme Involving State Lottery Tickets.
Article By : Patrick Mansfield | U.S. Consumer Finance
A company based out of Florida, along with its CEO and several of the top sales agents for the business, have been charged by the Securities and Exchange Commission with conducting a boiler room scheme. The scheme allegedly involved soliciting investments using cold-call tactics for business the supposedly helped facilitate the sale of lottery tickets over the phone and through the web in many states.
An emergency court order was obtained by the SEC to freeze assets belonging to LottoNet Operating Corporation, along with David Gray and Joseph A. Vitale. According to the complaint lodged by the SEC, the group misled investors regarding what their money would be used for, citing it would go to a market and develop the LottoNet platform. They also informed investors that their sales staff did not receive commissions for their sales. However, no less than 35 percent of all the money taken from investors was paid back to sales agents as commissions, and the company itself was responsible for siphoning funds to be used to personal benefits, like clothing and strip clubs. Some of the funds even went to help pay for a wedding ceremony.
The complaint lodged by the SEC that was recently unsealed in federal court included a number of the scripted sales pitches that agents were instructed to use when cold-calling potential investors. One such scripted response was to claim a monthly dividend of $8,500 on a mere $25,000 investment, which was supposedly under the condition that the LottoNet platform gained at least one percent of the industry market share. Portions of the scripted responses also included language that stressed the investment's safety, citing at least a 60 percent return in the worst case scenario.
According to findings from the SEC, LottoNet and its employees raised nearly $5 million from cold-call investors. Through the end of February of 2017, the company had paid a mere $10,525.43 to investors in the form of dividends. Despite the claim that the sales agents don't get paid commissions, agents were reportedly paid a combined $1.1 million in commissions coming directly from funds acquired from investors.
Vitale was responsible for collecting more than $1.4 million of that investor capital, and the complaint filed by the SEC alleges that Vitale used a fake alias, Donovan Kelly, to circumvent the fact that he was barred from the industry by FINRA, the Financial Industry Regulatory Authority.
Eric I. Bustillo, the Director of the Miami Regional Office of the SEC, said that investors were being duped by a flashy script and pushy sales agents while their money was used in strip clubs and shopping malls. The SEC recommends that all potential investors perform thorough due diligence before providing any funds to an investment firm or other brand seeking investments, especially those that do so via cold-calls. If something sounds too good to be true, it probably is.
The investigation by the SEC is ongoing, and it is centered in the Miami SEC office. Allen J. Genaldi, Gary Miller, and Kate Zoladz are conducting the investigation, and the supervisor for the case is Elisha L. Frank. Amie Riggle Berlin is leading the litigation through the investigation and subsequent court proceedings. FINRA and the SEC cooperate closely together in cases such as this to ensure justice is served in a swift and legal manner.