Source: Securities and Exchange Commission
On March 6, 2020, the Securities and Exchange Commission obtained an asset freeze and other emergency relief against Florida-based investment adviser Kinetic Investment Group, LLC and its managing member, Michael Scott Williams, in connection with an alleged fraudulent, unregistered securities offering that raised approximately $39 million from at least 30 investors located mostly in Florida and Puerto Rico.
According to the SEC’s complaint, filed in the U.S. District Court for the Middle District of Florida, Kinetic Group and Williams fraudulently raised millions of dollars by making material misrepresentations to investors who they solicited to invest in Kinetic Funds I, LLC, a purported hedge fund that they managed. The defendants allegedly represented, among other things, that Kinetic Funds’ largest sub-fund invested solely in U.S.-listed financial products and that at least 90% of its portfolio was hedged using listed options. The SEC alleges, however, that Williams actually invested a significant part of the sub-fund’s assets in a private start-up company owned by Williams. The complaint further alleges Williams misappropriated at least $6.3 million through undisclosed loans to himself and his entities.
On March 6, 2020, U.S. District Court Judge William F. Jung granted the SEC’s request for emergency relief, including an asset freeze and an order for records preservation, against Kinetic Group, Williams, and a number of companies charged by the SEC as relief defendants. The court also granted the SEC’s request to appoint Mark Kornfeld as receiver over Kinetic Group and the relief defendants.
The SEC’s complaint charges Kinetic Group and Williams with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Sections 206(1), 206(2), 206(4) and Rule 206(4)-8 of the Investment Advisers Act of 1940 (“Advisers Act”). The SEC’s complaint also charges Williams, in the alternative, with aiding and abetting Kinetic Group’s violations of Sections 206(1), 206(2), 206(4) and Rule 206(4)-8 of the Advisers Act. The SEC seeks injunctions, disgorgement of allegedly ill-gotten gains, with pre-judgment interest, and financial penalties against the defendants.
The SEC’s investigation, which is continuing, is being conducted by Barbara Viniegra, John T. Houchin, and Crystal Ivory in the Miami Regional Office and supervised by Eric. R. Busto, Fernando Torres and Glenn S. Gordon. The SEC’s litigation is being led by Christine Nestor and Stephanie Moot, under the supervision of Andrew O. Schiff. The SEC appreciates the assistance of the Florida Office of Financial Regulation and the Puerto Rico Office of the Commissioner of Financial Institutions.