The U.S. Securities and Exchange Commission (SEC) has charged three individuals involved in raising $2 million in a crowdfunding campaign in which they allegedly sold unregistered securities. The accused parties allegedly marketed their offerings as a lucrative opportunity to get into the cannabis industry but ended up pocketing the funds, with one channeling some of the funds to save U.S. magazine Ebony, which went into bankruptcy in 2020.
In its complaint, which it filed at the Eastern District of Michigan, the SEC accused Robert Shumake, Willard Jackson, and Nicole Birch of conducting the two fraudulent crowdfunding offerings. They allegedly sold securities in 420 Real Estate and the now-defunct Transatlantic Real Estate.
The offerings were conducted on a platform operated by TruCrowd Inc. Its CEO, known as Vincent Petrescu, was responsible for selecting which issuers could use the platform and under the SEC’s crowdfunding regulations, he served as a gatekeeper. As such, the regulator said Petrescu was responsible for taking measures to reduce the risk of fraud—a duty that he failed to do.
Shumake was allegedly the mastermind behind both offerings, according to the SEC. He teamed up with Birch to sell securities in Transatlantic Real Estate, as well as to sell securities in 420 Real Estate. They marketed both offerings as a great opportunity to invest in the lucrative cannabis industry by acquiring real estate and leasing it to companies engaged in the business of growing cannabis.
Despite being the driving force behind both offerings, authorities said Shumake kept his participation secret to conceal a past criminal conviction arising from a mortgage fraud scheme.
The three are accused of making several false and misleading statements to investors in connection with the securities offerings, including hiding Shumake’s criminal past. They also diverted hundreds of thousands of dollars to their own personal expenses.
The SEC accuses the three of violating the antifraud and registration provisions of the Securities Act and seeks disgorgement plus pre-judgment interest, penalties and permanent injunctions.
Gurbir Grewal, the director of the SEC’s Enforcement Division commented, “Crowdfunding offerings enable issuers to cast a wide net for potential investors, emphasizing the importance of full and honest disclosure. As companies continue to raise funds through crowdfunding offerings, we will hold issuers, gatekeepers, and individuals accountable and enforce the protections in place for all investors.”
Jackson, 57, who resides in Texas, acquired Ebony magazine in 2016 together with a partner. The magazine was once one of the most popular in the U.S., focusing on Black empowerment and selling over 2.5 million copies a month at its peak. However, it fell off and its sales dwindled year after year.
In 2020, Jackson was forced out of his role in the magazine after its lenders became concerned by the influence and position that Shumake had taken up. It was eventually forced into bankruptcy and bought by former NBA star Junior Bridgeman for $14 million.
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