FlimFlam Flop: SEC Sues Online Marketplace Trustify For Fraud

The Securities and Exchange Commission (SEC) filed a complaint on Friday in the Eastern District of Virginia against defendants Daniel K. Boice and Trustify, Inc. as well as relief defendants GoLean DC, LLC and Jennifer Mellon for fraud. The parties allegedly defrauded 90 investors out of $18.5 million through false and misleading documents and omissions.

Trustify, a technology company with “an online marketplace [platform] designed to connect customers to a network of private investigators,” formerly called FlimFlam, allegedly raised more than $18.5 million from at least 90 investors between 2015 and 2018 by making materially false and misleading statements and omitting information about Trustify’s revenue, the company’s growth, “its corporate client base and size of its investigator network”, and “use of investor funds.” As a result, the SEC claimed that it deceived investors into investing in the company through these false and misleading representations.

The SEC claimed that Boice, the CEO of Trustify and founder of GoLean, also deceived Trustify’s largest investor into reinvesting $1.957 million, by “providing a false document stating that an influential investment bank had joined as lead investor for that round – something the investor required prior to giving Trustify the money.” This fake documentation was supposedly used to provide the investor with the information necessary to confidently invest in Trustify.

Meanwhile, Trustify was touted to investors as “a successful technology start-up with growing revenues and a strong corporate client base,” in actuality, Trustify “was a failing business.” For example, by autumn 2018, Trustify could not pay its vendors and employees, and it essentially ceased operations; however, defendant Boice continued to seek investor funds without notifying current or potential investors about the company’s financial situation. The defendants allegedly provided investors with false statements and omitted information to make promising claims to investors.

The SEC alleged that Boice “pooled investors’ money into bank accounts and represented that he would use those funds to operate Trustify and grow the business,” however, the defendants did not use these funds as investors understood they would. Specifically, the SEC claimed that Boice “misappropriated at least $8 million of investor funds to pay for personal expenses for himself and his then-wife and colleague, Jennifer Mellon, [who was the former VP and Director of Trustify], including private jet charters, vacations, a luxury car, jewelry, and mortgage payments on their personal residence and a beach house. Boice also diverted hundreds of thousands of dollars to his purported consulting company, GoLean.” Additionally, the SEC claimed the relief defendants were unjustly enriched because they received some funds that they had no legitimate claim to receive.

The SEC concluded that the defendants violated antifraud provisions of federal securities laws, including Section 17(a) of the Securities Act of 1933 and Section 10(b) of the and Rule 10b-5. The defendants are also accused of unjust enrichment. The SEC has sought to permanently restrain and enjoin defendants from further violations, prejudgment interest, for all defendants and relief defendants to disgorge all ill-gotten funds, prejudgment interest, for defendants to pay civil penalties, and other relief determined by the court.

In unison with the SEC, the Department of Justice also took action and filed criminal charges against defendant Boice for wire fraud, securities fraud, and money laundering.