On Wednesday, the Securities and Exchange Commission (SEC) announced that it filed a complaint in the District of New Jersey against Vuuzle Media Corp., an alleged “online live streaming and entertainment company,” its founder and an investor in one of the founder’s previous business ventures who “aided and abetted” the purported fraud; the SEC claimed the defendants were “fraudulently offering over $14 million in securities to investors across the United States using an aggressive boiler room sales scheme.” A boiler room scheme is defined by Investopedia as a ” place or operation – usually a call center – where high-pressure salespeople call lists of potential investors …to peddle speculative, sometimes fraudulent, securities.”
According to the complaint, from around September 2016 to at least May 2020 the defendants “offered and sold more than $14 million of Vuuzle common stock and warrants to investors.” The Commission averred that in order to raise funds the defendants “falsely represented to investors that Vuuzle was a legitimate, successful, and growing company in the business of providing online live streaming and entertainment services,” when in actuality it “was little more than a front for a boiler room (the founder) controlled” that mainly operated out of the Philippines using a variety of corporate entities. The SEC claimed that the founder both directly and through marketing teams acting under his guidance, “engaged in aggressive and high-pressure sales campaigns,” such as by cold-calling possible investors and “through relentless and deceptive phone and email communication, convinced them to buy Vuuzle securities.”
The unregistered so-called “securities” were offered as common stock ranging between $1 to $5 per share, although most investors paid $5 per share, according to the SEC. Additionally, the Commission noted that “(m)any investors were also granted warrants that provided the investor the purported right to purchase additional shares for a limited time at a discounted price. The SEC added that the defendants also represented the company as a “‘pre-IPO’ investment opportunity that would provide returns to investors in the form of dividends and skyrocketing post-IPO stock values.” However, the SEC claimed that Vuuzle “has never made a profit, never paid dividends to any investor, and never made a public offering on any stock exchange.” Moreover, from when Vuuzle was established in October 2016 through May 2020 the company’s U.S. bank account “reflects total business revenue of less than $1,670,” the SEC added.
Moreover, the founder “secretly diverted approximately $5 million to support his aggressive fund-raising operations and pay commissions to stock promoters,” “misappropriated another nearly $5 million in direct transfer to his personal bank accounts overseas and by using corporate credit and debit cards for personal items,” and an additional $2 million “appears to have been used for other expenses in furtherance of the fraud,” according to the SEC.
The defendants also made many materially false and misleading statements in their various communications with investors, SEC filings, and offering documents, the SEC stated. For example, the agency alleged that the defendants informed investors that their “funds would be used to operate and build Vuuzle’s online streaming business, which would earn millions of dollars in revenue from service fees and advertising”; however, the SEC claimed that only $2 million out of the $14 million was used “to build the streaming applications, which served as props to raise more investor funds.” The SEC also claimed that the company falsely portrayed the founder as having a “peripheral relationship with the company,” while some SEC forms do not list the founder as a related party. In reality, the founder “exercised ultimate control over every part of Vuuzle’s business for the primary purpose of enriching himself,” the SEC stated.
As a result, the defendants are accused of violating Sections 5 and 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder as well as Section 15(a).
The SEC has sought for the court to enter a final judgment that the defendants have violated the aforementioned securities laws and rules promulgated thereunder; an order permanently restraining and enjoining the defendants from further violations; disgorgement of all ill-gotten gains; civil money penalties; and other relief. The SEC is represented by its own counsel.
In a press release, Melissa Hodgman, Acting Director of the SEC’s Division of Enforcement, said “We are committed to taking action to protect investors and pursuing relief for those who have been harmed. We will vigorously pursue fraudsters who enrich themselves at investors’ expense.”
