On September 20th, the SEC announced that it filed a civil lawsuit against three individuals and a crowdfunding platform. The suit alleges that two companies fraudulently sold securities through Regulation Crowdfunding. The companies in question are Transatlantic Real Estate and 420 Real Estate. Both startups were involved in acquiring and leasing buildings for cannabis and hemp business use. Transatlantic Real Estate no longer exists today, though 420 Real Estate still does. However, beyond the archives of their raise pages (see Transatlantic here and 420 here), there is very little information available for either company. Their respective websites focused solely on their crowdfunding campaigns and offered no substantial details about their business models or team members. According to their Form Cs filed with the SEC, Nicole Birch founded Transatlantic Real Estate, and 420 Real Estate was run by Willard Jackson

The SEC’s suit alleges that the founders of the startups used the money raised in their crowdfunding campaigns for personal use, rather than for the companies. It also claims that another man was involved with both companies, Robert Shumake Jr. Shumake is no stranger to fraud — in 2017, he pled guilty to two misdemeanors and two felonies associated with mortgage fraud. Shumake was ordered to not participate in any work where he had access or was put in charge of another person’s money during his 18 month probation. But the SEC alleges he broke that probation by participating in the crowdfunding campaign for Transatlantic Real Estate. He also owns a marketing company — Shumoja Media Group — which supposedly received payments for services associated with both crowdfunding campaigns.

According to the SEC, Shumake hid his association with Transatlantic Real Estate and 420 Real Estate in order to prevent his criminal background from interfering with the raises. The SEC also alleges that the CEO of TruCrowd (which owns Fundanna, the platform used by both companies for their campaigns) knew about Shumake’s involvement but still allowed the raises to continue.

Transatlantic Real Estate raised $1.02 million through crowdfunding while 420 Real Estate reached nearly $900,000 in its campaign. However, it’s alleged that neither company used the funds for their operations. According to the SEC, Birch funneled money to the attorney practice that she owns, and Jackson transferred money to two companies that he owns. 

As a consequence of this alleged conduct, the SEC’s action charges Shumake, Birch, Jackson, and 420 Real Estate with violating the anti-fraud and registration provisions of the Securities Act of 1933 and Securities Exchange Act of 1934. The complaint also charges TruCrowd and Petrescu with violating the crowdfunding rules of the Securities Act.

It’s important to note that all information about this situation currently comes from the SEC’s press release and complaint. None of the accused have yet responded. It will likely take months — at the least — for this SEC action to be resolved.