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`Case 3:20-cv-08238 Document 1 Filed 11/23/20 Page 1 of 11
`
`ERIN E. SCHNEIDER (Cal. Bar No. 216114)
` schneidere@sec.gov
`MONIQUE C. WINKLER (Cal. Bar No. 213031)
` winklerm@sec.gov
`TRACY L. DAVIS (Cal. Bar No. 184129)
` davistl@sec.gov
`SUSAN F. LAMARCA (Cal. Bar No. 215231)
` lamarcas@sec.gov
`MARC D. KATZ (Cal. Bar No. 189534)
` katzma@sec.gov
`MATTHEW G. MEYERHOFER (Cal. Bar No. 268559)
` meyerhoferm@sec.gov
`
`Attorneys for Plaintiff
`SECURITIES AND EXCHANGE COMMISSION
`44 Montgomery Street, Suite 2800
`San Francisco, CA 94104
`(415) 705-2500 (Telephone)
`(415) 705-2501 (Facsimile)
`
`UNITED STATES DISTRICT COURT
`NORTHERN DISTRICT OF CALIFORNIA
`SAN FRANCISCO DIVISION
`
`
`SECURITIES AND EXCHANGE COMMISSION,
`
`
`
`Plaintiff,
`
`
`vs.
`
`BENJA INCORPORATED and ANDREW J.
`CHAPIN,
`
`
`
`
`
`
`Defendants.
`
`Case No.
`
`
`COMPLAINT
`
`
`Plaintiff Securities and Exchange Commission (the “SEC”) alleges:
`SUMMARY OF THE ACTION
`1. During 2018 and 2020, Benja Incorporated (“Benja”) and its Chief Executive
`Officer, Defendant Andrew J. Chapin raised millions of dollars from investors, and banks, by
`making false representations about Benja’s business. Benja, a San Francisco-based e-commerce
`startup, purports to place online advertisements for major clothing brands to sell excess
`
`COMPLAINT
`
`
`
`
`-1-
`
`CASE NO. _________
`
`
`

`

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`Case 3:20-cv-08238 Document 1 Filed 11/23/20 Page 2 of 11
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`
`merchandise at a discount. In particular, Chapin and Benja falsely claimed to prospective investors
`that Benja was profitable and had generated millions of dollars in revenue from customers that
`supposedly included Nike, Patagonia and Fanatics.
`2. In reality, Benja did not have contracts with, or revenue from, the major brands it
`claimed were its customers. Chapin maintained the illusion of Benja’s commercial success through
`a scheme that included using falsified documents in the offering of securities, forging contracts
`with purported customers, doctoring bank statements, and impersonating customers in calls with at
`least one investor.
`3. The SEC seeks an order from the Court enjoining Defendants Benja and Chapin
`from future violations of the antifraud provisions of the securities laws; requiring Defendants to
`each pay a civil monetary penalty, and to disgorge their respective ill-gotten gains or unjust
`enrichment with prejudgment interest thereon; prohibiting Chapin from acting as an officer or
`director of any public company; and providing for other appropriate relief.
`JURISDICTION AND VENUE
`4. The SEC brings this action pursuant to Sections 20(b) and 20(d) of the Securities
`Act of 1933 (“Securities Act”) [15 U.S.C. §§ 77t(b) and 77t(d)] and Sections 21(d) and 21(e) of the
`Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. §§ 78u(d) and 78u(e)].
`5. This Court has jurisdiction over this action pursuant to Section 22(a) of the
`Securities Act, [15 U.S.C. § 77v(a)], and Section 27 of the Exchange Act [15 U.S.C. § 78aa].
`6. Defendants, directly or indirectly, made use of the means and instrumentalities of
`interstate commerce or of the mails in connection with the acts, transactions, practices, and courses
`of business alleged in this complaint.
`7. Venue is proper in this District pursuant to Section 22(a) of the Securities Act,
`[15 U.S.C. § 77v(a)], and Section 27(a) of the Exchange Act [15 U.S.C. § 78aa(a)]. Acts,
`transactions, practices, and courses of business that form the basis for the violations alleged in this
`complaint occurred in the Northern District of California.
`8. Under Civil Local Rule 3-2(d), this civil action should be assigned to the San
`Francisco Division, because a substantial part of the events or omissions which give rise to the
`
`COMPLAINT
`
`
`
`
`-2-
`
`CASE NO. _________
`
`

`

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`claims alleged herein occurred in San Francisco County; in addition, Defendant Benja’s principal
`place of business is in San Francisco and Defendant Chapin resides in San Francisco.
`DEFENDANTS
`9. Defendant Andrew J. Chapin, age 31, resides in San Francisco, California. Chapin
`is Benja’s founder and CEO, and has controlled Benja from its formation at least until its
`bankruptcy filing.
`10. Defendant Benja Incorporated is a Delaware Corporation with is principal place of
`business in San Francisco, California. Benja was founded by Chapin in June 2018, as the
`successor to another company, EPHE Corp., that Chapin had founded by 2015. Chapin operated
`EPHE Corp. under the “Benja” name from at least December 2016 until the incorporation of Benja
`in June 2018. From at least June 2018 through September 2020, Benja purported to be an e-
`commerce startup that places online advertisements for major clothing brands, enabling those
`brands to sell excess merchandise at a discount. On or about October 15, 2020, Benja filed for
`Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Northern District
`of California.
`
`FACTUAL ALLEGATIONS
`A.
`Chapin Deceives Investors to Obtain Early Benja Investments
`11. In 2017, Chapin operated Benja, then known as EPHE Corp., as a start-up
`company. In or around early 2017, Benja obtained operating funds through its acceptance into a
`New York-based “start-up accelerator,” which provides funding and business guidance to small,
`new business ventures.
`12. Through Benja’s participation in the accelerator, in or around November 2017
`Chapin was introduced to a venture capital investor from San Francisco. During the spring of
`2018, Chapin and the venture capital investor discussed the potential for an investment in Benja.
`13. To entice the San Francisco venture capital investor to make an investment, Chapin
`made claims to the investor about Benja’s business that were not true. In particular, Chapin told
`the investor that Benja was a profitable company, whose customers included famous brands,
`including Fanatics, Backcountry.com, and Patagonia.
`
`COMPLAINT
`
`
`
`
`-3-
`
`CASE NO. _________
`
`

`

`Case 3:20-cv-08238 Document 1 Filed 11/23/20 Page 4 of 11
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`14. In or around June 2018, Chapin provided to the San Francisco venture capital
`investor a slide deck, which represented that Nike, Patagonia, and Backcountry.com were all Benja
`customers of Benja’s “merchandise ad network,” which purportedly sold advertisement
`impressions across web, mobile, and social channels. The slide deck, which described Benja as a
`“group of scrappy hustlers,” further claimed that up to that point in 2018, Nike had spent $275,000
`with Benja, Patagonia had spent $161,500 with Benja, and Backcountry.com had spent $170,000
`with Benja.
`15. The representations contained in the slide deck, and made verbally by Chapin to the
`venture capital investor, were false. Neither Fanatics, Backcountry, Patagonia, or Nike had signed
`agreements with Benja, nor had any of these companies spent any money with Benja as
`Defendants had claimed.
`16. As the San Francisco venture capital investor and Chapin continued to discuss a
`potential investment, the investor told Chapin that it would be important to his decision-making to
`hear from another institutional investor that had also committed to investing in Benja. The
`investor wanted assurances that another sophisticated investor had vetted Benja as an investment.
`17. Soon afterwards, Chapin told the San Francisco venture capital investor that
`another institutional investor had decided to make a $1 million investment in Benja. In particular,
`Chapin identified the supposed institutional investor, which was another venture capital firm
`located in Saint Louis, Missouri, which manages funds that make “early-stage” investments in
`startup companies.
`18. The San Francisco venture capital investor requested to speak with someone from
`the Saint Louis venture capital firm about their expected investment in Benja. Accordingly, in or
`around October 23, 2018, Chapin arranged a call between the San Francisco venture capital
`investor and an individual whom Chapin introduced by name, and who was supposedly the
`founder and general partner of the Saint Louis venture capital firm. After this call, on or about
`October 26, 2018, the San Francisco venture capital investor purchased 1,278 shares of Benja
`common stock for $100,000. The investor wired his $100,000 investment into a bank account
`owned by Chapin.
`
`COMPLAINT
`
`
`
`
`-4-
`
`CASE NO. _________
`
`

`

`Case 3:20-cv-08238 Document 1 Filed 11/23/20 Page 5 of 11
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`19. In reality, the Saint Louis venture capital firm did not invest in Benja. In addition,
`in or around September 2020, the San Francisco venture capital investor directly contacted the
`founder and general partner of the Saint Louis venture capital firm, whom he had supposedly
`spoken with in 2018 in the call arranged by Chapin. The founder and general partner of the Saint
`Louis firm denied that he had ever taken part in the call or invested in Benja.
`20. In early November 2018, the San Francisco venture capital investor introduced an
`acquaintance of his to Chapin, for the purpose of considering an investment in Benja. On or around
`November 9, 2018, Chapin spoke with the acquaintance and described Benja’s purported business
`to him. During the discussion, Chapin falsely represented to the acquaintance that Benja’s
`customers included Nike and Fanatics.
`21. The acquaintance of the San Francisco venture capital investor also told Chapin
`that the participation of an institutional investor was important to his investment decision. The
`acquaintance also wanted assurances that another sophisticated investor had vetted Benja as an
`investment. Chapin represented to the acquaintance that the same Saint Louis venture capital firm
`that he had described to the San Francisco investor, and which Chapin identified by name, had
`recently invested in Benja. At the request of the acquaintance, Chapin arranged a similar call
`between the acquaintance and a person purportedly associated with the Saint Louis venture capital
`firm.
`
`22. During the call, which occurred on or around December 1, 2018, an individual that
`Chapin introduced by name, who was purportedly the founder and general partner of the Saint
`Louis venture capital firm, described the work the Saint Louis firm had supposedly performed to
`investigate Benja to determine whether to make an investment. The individual further confirmed to
`the acquaintance that the Saint Louis firm had invested in Benja. In reality, the Saint Louis venture
`capital firm did not invest in Benja.
`23. On or about December 14, 2018, the acquaintance of the San Francisco venture
`capital investor purchased 1,278 shares of Benja common stock for $100,000. The acquaintance
`wired his $100,000 investment into a bank account owned by Chapin.
`24. In addition, the San Francisco venture capital investor introduced Chapin to one or
`
`COMPLAINT
`
`
`
`
`-5-
`
`CASE NO. _________
`
`

`

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`more other persons whom he knew, who also made investments in Benja.
`B.
`Chapin Fraudulently Solicits Additional Investments in Benja During 2020
`25. In or around March 2020, Chapin contacted another venture capital firm, located in
`New York, which funds startup companies that have recurring revenues. Chapin described
`Benja’s supposed business to the principal of the New York venture capital firm.
`26. The principal of the New York venture capital firm sought from Chapin
`information regarding Benja to allow him to determine whether his firm would make an
`investment in Benja. In response, Chapin gave the principal of the New York firm multiple
`documents that purported to show revenue that Benja received from well-known retail brands,
`including Fanatics, Nike, Patagonia, Zappos, and other companies. According to the documents,
`Benja was then generating approximately $2 million per month from these and other purported
`Benja customers. In reality, the revenue reflected in the documents from Fanatics, Nike,
`Patagonia, Zappos and others was falsified.
`27. Chapin also provided to the principal of the New York venture capital firm forged
`agreements between Benja and these companies purporting to show that the companies agreed to
`purchase advertising space on Benja’s commerce network, which purportedly included mobile
`applications, online publishers, web advertisements, and social media networks. In addition,
`Chapin provided to the principal Benja’s bank statements, which had been doctored to falsely
`show payments from these companies.
`28. Chapin also invited the principal of the New York venture capital firm to
`participate in two phone calls, one purportedly with a representative of Nike, and the other
`purportedly with a representative of Fanatics. Chapin introduced the principal to the two
`purported representatives by name. However, in reality, neither Nike nor Fanatics (nor any
`persons employed by them) participated in the calls; instead, Chapin arranged for an associate of
`his to impersonate the representatives of the companies.
`29. Chapin further told the principal of the New York venture capital firm that Benja
`would use the proceeds from the New York firm’s investment to continue developing Benja’s
`technology and to purchase advertising space.
`
`COMPLAINT
`
`
`
`
`-6-
`
`CASE NO. _________
`
`

`

`Case 3:20-cv-08238 Document 1 Filed 11/23/20 Page 7 of 11
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`30. On the basis of these fraudulent statements and deceptions, the New York venture
`capital firm entered into an investment agreement with Benja, and it advanced $1 million to Benja
`on or about June 4, 2020. The agreement provided, among other things, that the New York firm
`would be entitled to share in Benja’s revenue, and it included a grant to the New York firm of
`warrants to purchase Benja’s common stock.
`31. Contrary to the representations Chapin made to the principal of the New York firm
`about the uses of the proceeds, rather than using the money to develop Benja’s technology or
`purchase advertising, Benja immediately used the money to pay back, in part, a particular Benja
`creditor.
`32. The creditor who was partially repaid in or around June 2020 with the proceeds
`from the investment by the New York venture capital firm was a financing company from whom
`Benja had obtained approximately $4.5 million in or around April 2020 and May 2020. The
`financing company had advanced Benja the funds under an arrangement in which Benja
`purported to sell certain of its accounts receivables. To obtain the financing, Chapin sent the
`financing company fake invoices that falsely represented that Benja had outstanding receivables,
`incurred between February 2020 and May 2020, from companies with well-known brands,
`including Patagonia, Nike, Fanatics, and Backcountry.com. In reality, those receivables did not
`exist. By July 2020, the financing company learned that the purported receivables did not exist
`and demanded repayment from Benja.
`33. After Benja received the $4.5 million from the financing company, Chapin wired
`the money out of Benja’s account, and sent a portion of it to Chapin’s own bank account and to
`pay off credit card expenses.
`34. In May 2020, Chapin again began discussing a possible additional investment in
`Benja with the original San Francisco venture capital investor. In furtherance of those
`negotiations, in or around August 2020, Chapin sent the investor a memorandum regarding a
`planned capital raise that again falsely represented that Nike was one of Benja’s customers.
`35. The same memorandum that Chapin provided to the San Francisco venture capital
`investor also stated, falsely, that Benja had entered into an agreement with Spotify to place
`
`COMPLAINT
`
`
`
`
`-7-
`
`CASE NO. _________
`
`

`

`Case 3:20-cv-08238 Document 1 Filed 11/23/20 Page 8 of 11
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`advertisements in Spotify podcasts and that “Benja [would] be the exclusive e-commerce partner
`of Spotify North America for a period of three years.” In reality, Spotify never had any such
`agreement with Benja. Chapin told the investor that the proceeds from the investment would be
`used to purchase advertising space. Contrary to those representations, as soon as the investment
`was made, Benja used these funds to re-pay, in part, the financing company.
`36. Based on these false representations and other representations about the purported
`success of Benja’s business, on or about September 2, 2020, the San Francisco venture capital
`investor wired $50,000 to Benja. In return, the investor obtained from Benja a security called a
`“Simple Agreement for Future Equity.” That security provided that the investor would, subject to
`certain conditions, receive shares of Benja common stock in the future.
`37. In August 2020, Chapin also began to discuss with the New York-based accelerator
`a potential additional investment in Benja. Chapin sent the New York firm the same written
`representations he had sent to the San Francisco venture capital investor, which included the false
`representations about Benja’s purported relationships with Nike and with the well-known music
`streaming service, Spotify. Chapin informed a person associated with the New York-based
`accelerator that the money invested would be used to hire new software developers and to
`purchase advertising space with Spotify and the well-known video platform, TikTok. Contrary to
`those representations, as soon as the investment was made, Benja used these funds to re-pay, in
`part, the financing company.
`38. On or about September 2, 2020, the New York-based accelerator made a $500,000
`investment in Benja, and in exchange obtained a Simple Agreement for Future Equity.
`39. In making the above-described false and misleading statements to persons to solicit
`investments, and in engaging in the above-described deceptive conduct and deceptive course of
`business, Chapin and Benja acted knowingly or recklessly. For instance, when Chapin made the
`above-described series of statements about the existence of Benja’s purported other investors,
`customers, revenue and receivables, supposedly related to well-known brands and businesses, he
`did so on behalf of Benja and he knew, or was reckless in not knowing, that his statements were
`false and misleading.
`
`COMPLAINT
`
`
`
`
`-8-
`
`CASE NO. _________
`
`

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`Case 3:20-cv-08238 Document 1 Filed 11/23/20 Page 9 of 11
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`
`
`(c)
`
`40. Chapin engaged in knowing or reckless falsehoods and deceptions on behalf of
`Benja, and he acted on behalf of Benja in his intent to deceive investors.
`FIRST CLAIM FOR RELIEF
`Violations of Section 10(b) of the Exchange Act and Rule 10b-5 Thereunder
`41. The SEC re-alleges and incorporates by reference Paragraph Nos. 1 through 40.
`42. By engaging in the conduct described above, Defendants Benja and Chapin each,
`directly or indirectly, in connection with the purchase or sale of securities, by the use of means or
`instrumentalities of interstate commerce, or the mails, with scienter:
`(a)
`Employed devices, schemes, or artifices to defraud;
`(b) Made untrue statements of material fact or omitted to state material facts
`necessary in order to make the statements made, in the light of the
`circumstances under which they were made, not misleading; and
`Engaged in acts, practices, or courses of business which operated or would
`operate as a fraud or deceit upon other persons, including purchasers and
`sellers of securities.
`43. By reason of the foregoing, Defendants Benja and Chapin violated, and unless
`restrained and enjoined will continue to violate, Section 10(b) of the Exchange Act [15 U.S.C.
`§ 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5].
`SECOND CLAIM FOR RELIEF
`Violations of Sections 17(a)(1), (2), and (3) of the Securities Act
`44. The SEC re-alleges and incorporates by reference Paragraph Nos. 1 through 40.
`45. By engaging in the conduct described above, Defendants Benja and Chapin,
`directly or indirectly, in the offer or sale of securities, by use of the means or instruments of
`transportation or communication in interstate commerce or by use of the mails:
`(a) With scienter, employed devices, schemes, or artifices to defraud;
`(b)
`Obtained money or property by means of untrue statements of material fact
`or by omitting to state a material fact necessary in order to make the
`
`COMPLAINT
`
`
`
`
`-9-
`
`CASE NO. _________
`
`

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`(c)
`
`statements made, in light of the circumstances under which they were
`made, not misleading; and
`Engaged in transactions, practices, or courses of business which operated or
`would operate as a fraud or deceit upon purchasers.
`46. By reason of the foregoing, Defendants Benja and Chapin violated, and unless
`restrained and enjoined will continue to violate, Section 17(a) of the Securities Act [15 U.S.C.
`§ 77q(a)].
`
`PRAYER FOR RELIEF
`WHEREFORE, the SEC respectfully requests that this Court:
`I.
`Permanently enjoin Defendants Benja and Chapin from directly or indirectly violating
`Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R.
`§ 240.10b-5], and Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)].
`II.
`Issue an order requiring Defendants Benja and Chapin to disgorge the ill-gotten gains or
`unjust enrichment each of them obtained or derived from such violations, and to pay a civil
`monetary penalty pursuant to Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)], and
`Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)(3)].
`III.
`Prohibit Defendant Chapin from serving as an officer or director of any entity having a
`class of securities registered with the SEC pursuant to Section 12 of the Exchange Act [15 U.S.C.
`§ 78l] or that is required to file reports pursuant to Section 15(d) of the Exchange Act [15 U.S.C.
`§ 78o(d)], pursuant to Section 20(e) of the Securities Act [15 U.S.C. § 77t(e)] and Section 21(d)(2)
`of the Exchange Act [15 U.S.C. § 78u(d)(2)].
`
`IV.
`Retain jurisdiction of this action in accordance with the principles of equity and the Federal
`Rules of Civil Procedure in order to implement and carry out the terms of all orders and decrees
`
`COMPLAINT
`
`
`
`
`-10-
`
`CASE NO. _________
`
`

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`that may be entered, or to entertain any suitable application or motion for additional relief within
`the jurisdiction of this Court.
`
`V.
`Grant such other and further relief as this Court may determine to be just and necessary.
`
`
`Dated: November 23, 2020
`
`
`
`
`
`
`
`
`
`Respectfully submitted,
`
`
` /s/ Matthew G. Meyerhofer
`MATTHEW G. MEYERHOFER
`Attorney for Plaintiff
`SECURITIES AND EXCHANGE COMMISSION
`
`COMPLAINT
`
`
`
`
`-11-
`
`CASE NO. _________
`
`