`
`UNITED STATES DISTRICT COURT
`WESTERN DISTRICT OF PENNSYLVANIA
`
`SECURITIES AND EXCHANGE
`COMMISSION,
`
` SEALED DOCUMENT
`
`Plaintiff,
`
` v.
`
` 1:20-cv-154
` No.
`
`HVIZDZAK CAPITAL
`MANAGEMENT, LLC; HIGH
`STREET CAPITAL LLC; HIGH
`STREET CAPITAL PARTNERS,
`LLC; SHANE HVIZDZAK; and
`SEAN HVIZDZAK,
`
`Defendants.
`
`COMPLAINT
`
`Plaintiff Securities and Exchange Commission (“SEC” or “Commission”), for its
`
`Complaint against Defendants Hvizdzak Capital Management, LLC (“HCM”); High Street
`
`Capital LLC (“HSC”); High Street Capital Partners LLC (“HSCP”), Shane Hvizdzak (“Shane”),
`
`and Sean Hvizdzak (“Sean”), alleges as follows:
`
`INTRODUCTION
`
`1.
`
`Since at least November 2019, Defendants have fraudulently raised and
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`subsequently misappropriated millions of dollars from the sale of limited partnership interests in
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`High Street Capital Fund USA, LP (“the Fund”), a Fund they claimed would invest in digital
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`asset for the benefit of Fund investors. In soliciting investments, Defendants misrepresented key
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`information to potential investors about the Fund’s past performance and assets, and provided
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`investors and/or their representatives with false financial statements and a forged audit report for
`
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`Case 1:20-cv-00154-SPB Document 2 Filed 06/16/20 Page 2 of 20
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`the Fund. Once invested, Defendants, without investor knowledge or consent, moved millions of
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`dollars of investor funds from Fund accounts into the personal bank accounts of Shane and Sean,
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`where Defendants further dissipated investor funds into personal digital asset accounts.
`
`2.
`
`By engaging in the conduct described in this Complaint, Defendants violated
`
`Section 17(a) of the Securities Act of 1933 (“Securities Act”), 15 U.S.C. § 77q(a), Section 10(b)
`
`of the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. § 78j(b), and Rule 10b-5
`
`thereunder, 17 C.F.R. § 240.10b-5, and unless restrained and enjoined will engage in further
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`violations of these provisions.
`
`3.
`
`The Commission respectfully requests, as emergency and preliminary relief to
`
`preserve the status quo, an order temporarily freezing Defendants’ assets and prohibiting
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`Defendants from destroying or altering documents. The Commission further requests an
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`emergency order permitting the Commission to conduct expedited discovery and requiring
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`Defendants to provide an accounting identifying the amount and location of all Fund assets.
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`Finally, the Commission requests the Court issue an order to show cause why a preliminary
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`injunction should not issue halting Defendants’ fraudulent conduct pending a trial on the merits.
`
`4.
`
`At the conclusion of the litigation, the Commission respectfully requests, among
`
`other things, that the Court permanently enjoin Defendants from committing further violations of
`
`the federal securities laws as alleged in this Complaint, and order Defendants to pay
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`disgorgement, plus prejudgment interest, civil penalties, and other appropriate and necessary
`
`equitable relief.
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`JURISDICTION AND VENUE
`
`5.
`
`The Court has jurisdiction over this action pursuant Sections 21(d), 21(e), and
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`27(a) of the Exchange Act, 15 U.S.C. §§ 78u(d)-(e) & 78aa(a), and Sections 20(b)-(d) and 22(a)
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`of the Securities Act, 15 U.S.C. §§ 77t(b)-(d) & 77v(a).
`
`6.
`
`Venue is proper in the Western District of Pennsylvania 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.
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`Among other things, most of the Defendants, including the Hvizdzaks, reside in this District, and
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`the Defendants conducted much of the activity alleged in this Complaint from their entities
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`located in this District.
`
`7.
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`Defendants have, directly and indirectly, made use of the means or
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`instrumentalities of interstate commerce and/or of the mails, including the use of email,
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`telephone, and the internet in connection with illegal acts alleged in this Complaint, certain of
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`which occurred within this District. In addition, Defendants have solicited investors in several
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`states, including Pennsylvania, California, and Florida, to purchase limited partner interests in
`
`the Fund.
`
`DEFENDANTS
`
`8.
`
`Hvizdzak Capital Management LLC (“HCM”), is a Pennsylvania limited
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`liability company with its principal place of business in Bradford, Pennsylvania. Shane and Sean
`
`Hvizdzak are HCM’s sole members, and jointly had signatory authority over HCM’s bank
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`account. HCM is not registered with the Commission in any capacity.
`
`9.
`
`High Street Capital LLC (“HSC”) is a Pennsylvania limited liability company
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`with its principal place of business in Bradford, Pennsylvania. HSC is the investment
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`management company for the Fund. HSC is not registered with the Commission in any capacity.
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`3
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`Case 1:20-cv-00154-SPB Document 2 Filed 06/16/20 Page 4 of 20
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`10. High Street Capital Partners, LLC (“HSCP”) is a Pennsylvania limited liability
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`company with its principal place of business in Bradford, Pennsylvania. HSCP is the general
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`partner of the Fund. HSCP is not registered with the Commission in any capacity.
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`11.
`
`Shane Hvizdzak (“Shane”), 32, resides in Bradford, Pennsylvania, and is the Co-
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`Manager and Principal Trader for the HSC.
`
`12.
`
`Sean Hvizdzak (“Sean” and, collectively with “Shane,” the “Hvizdzak
`
`Brothers”), 34, resides in St., Marys, Pennsylvania, and is the Co-Manager and Operations
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`Director for the HSC. Sean appears to be an attorney licensed in Pennsylvania. Shane and Sean
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`are brothers.
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`OTHER RELEVANT ENTITIES
`
`13. High Street Capital Fund USA, LP (“the Fund”) is a limited partnership
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`established on March 26, 2019 with its principal place of business in Bradford, Pennsylvania.
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`The Fund filed a notice of exempt offering of securities on Form D on May 30, 2019.
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`FACTUAL ALLEGATIONS
`
`I.
`
`The Fund And The Fund Defendants
`
`14.
`
`On March 26, 2019, the Hvizdzak Brothers formed the Fund to invest “in a wide
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`variety of cryptocurrency investments.” As stated in the Fund’s Private Placement
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`Memorandum (“PPM”), the Fund operated as a “pooled investment vehicle through which the
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`assets of its General Partner and the Limited Partners” were “invested in a wide variety of
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`cryptocurrency investments.” The PPM further explained that the investment vehicle was an
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`“algorithmic quant fund that intends to take advantage of the volatility of the cryptocurrency
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`market,” and its “primary investment objective is to achieve capital appreciation with above-
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`average returns” for its limited partners using various predictive indicators.
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`4
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`Case 1:20-cv-00154-SPB Document 2 Filed 06/16/20 Page 5 of 20
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`15.
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`According to the Fund’s operative documents, including the PPM and the limited
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`partnership agreement (“LPA”), HSCP was the Fund’s General Partner and was exclusively
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`responsible for the Fund’s management.
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`16.
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`Pursuant to an investment management agreement between the Fund and HSC,
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`HSC agreed to serve as the Fund’s Investment Manager, responsible for providing “advice and
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`services . . . to manage the Investments and operate the Partnership.”
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`17.
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`The Hvizdzak Brothers solely owned and controlled both HSC and HSCP and
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`thus were alone responsible for the operations and management of the Fund and its investments.
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`Hereinafter, the Commission refers collectively to Defendants HSCP, HSC, Shane, and Sean as
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`the “Fund Defendants.”
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`18.
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`As compensation for managing the Fund, HSC and HSCP were entitled to (1)
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`“Management Fees” equal to approximately 1.5 percent annually of each limited partner’s share
`
`of the Fund’s net asset value, paid monthly, and (2) a “Performance Allocation” equal to 30
`
`percent of each limited partners’ net profit each quarter, subject to certain limitations. HSC and
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`HSCP were entitled to use Fund assets to pay certain operating expenses, including marketing
`
`expenses and third-party service fees, but the Fund did not pay HSC’s day-to-day expenses.
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`19.
`
`The Fund’s LPA required that the Fund maintain proper custody of Fund assets.
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`Pursuant to the LPA, Defendant HSC could open bank and other financial accounts in the Fund’s
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`name, and “to the extent that funds are not invested, to deposit and maintain such funds in the
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`name of the [Fund] in such accounts,” as well as invest in short-term investments, “provided,
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`however, that the Partnership funds shall not be commingled with the Funds of any other
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`Person.”
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`5
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`20.
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`The Fund Defendants established two Fund bank accounts at Signature Bank,
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`with account numbers ending in x1705 and x1713. These were the Fund’s only bank accounts,
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`and Sean and Shane both had signatory authority over these accounts.
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`21.
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`The Fund’s Signature Bank accounts were monitored by a third party
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`administrator, Administrator A, which, among other things, was responsible for monitoring the
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`Fund’s control of assets in accordance with the LPA.
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`22.
`
`The Fund Defendants represented that they intended to custody their digital assets
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`through Gemini Trust Company LLC (“Gemini”), and that the “Fund may keep cryptocurrencies
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`in different ‘wallets’ that are either controlled directly by the Fund or by various exchanges on
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`behalf of the Fund.” The Fund Defendants further represented that the “Fund’s cryptocurrencies
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`and other digital assets will be segregated using unique digital asset addresses in the Custodian’s
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`cold storage system, which will be independently verifiable and auditable on their respective
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`blockchain.”
`
`23.
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`Defendants established a Fund account ending x3034 at Gemini to conduct the
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`Fund’s digital asset trading. Sean and Shane both controlled the Fund’s Gemini account, along
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`with HSC’s Chief Financial Officer.
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`24.
`
`By May 30, 2019, the Fund Defendants began offering and selling limited
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`partnership interests to investors, claiming an exemption from registration pursuant to the
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`Federal securities laws.
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`25.
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`In 2019, the Fund Defendants recorded with its administrator that the Fund raised
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`approximately $540,000 selling limited partnership interests to five limited investors (not
`
`including Sean and Shane).
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`6
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`Case 1:20-cv-00154-SPB Document 2 Filed 06/16/20 Page 7 of 20
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`26.
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`Only one of these recorded investors paid in U.S. dollars (the remainder made in-
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`kind payments in digital assets), and that investor sent his funds to a bank account in the Fund’s
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`name at Signature Bank on September 20, 2019. Administrator A recorded these individuals as
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`limited partners in the Fund.
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`27.
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`In 2019, the Fund sent a total of $645,000 to its account at Gemini, and by the end
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`of 2019, the Fund held approximately $550,000 in digital assets and another approximately $1.7
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`million in various Fund accounts.
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`28.
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`In all, for 2019, the Fund recognized a net loss of approximately $477,000 from
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`its digital asset investments, for a net loss of approximately 25 percent.
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`29.
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`In 2020, the Fund Defendants accepted new limited partners. As of April 20,
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`2020, the Fund Defendants informed Administrator A that the Fund added five new limited
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`partners, three of whom paid in U.S. dollars totaling $1.1 million (and the rest making in-kind
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`payments using digital assets).
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`II.
`
`Defendant HCM And The HCM Account
`
`30.
`
`31.
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`Defendant HCM is an entity owned and controlled by the Hvizdzak Brothers.
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`The Hvizdzak brothers are the sole signatories on HCM’s bank account (ending in
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`x4297) located at CNB Bank, Inc. (“HCM Account.”)
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`32.
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`The Fund’s operative documents do not disclose any connection between the
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`Fund and Defendant HCM.
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`33.
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`Since at least July 2019, Sean and Shane have also confirmed by email to CNB
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`Bank that there is no relationship between HCM and the Fund. In response to an inquiry from
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`CNB Bank about certain wire transfer activity, Sean and Shane represented that Defendant HCM
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`was engaged in several businesses unrelated to the Fund. The Hvizdzak Brothers also
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`7
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`Case 1:20-cv-00154-SPB Document 2 Filed 06/16/20 Page 8 of 20
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`represented to CNB Bank that all money received into the HCM Account compromised
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`payments for services and data that Sean and Shane provide to their customers, not funds for any
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`third-party investment, including the Fund. Finally, the Hvizdzak Brothers confirmed to CNB
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`Bank that they maintain all Fund money in Fund accounts at Signature Bank.
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`III. The Defendants’ Fraudulent Conduct
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`34.
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`Defendants conducted certain Fund business in accordance with their
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`representations to investors and CNB Bank: certain Fund investors deposited their investments
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`into Fund accounts at Signature Bank and Gemini, and the Fund pooled their investments and
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`traded digital assets on the Fund’s behalf. Tax records show that trading resulted in a net loss to
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`the Fund for 2019 for those investors.
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`35.
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`In and around November 2019, however, Defendants began acting outside of this
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`established Fund structure, directing other investors in the Fund to send their investments to the
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`HCM Account at CNB Bank. Defendants then simply misappropriated those investors’ money
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`to their personal and other non-Fund accounts and did not invest that money as represented in the
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`PPM and LPA. In addition, the Fund Defendants made numerous material misstatements to
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`potential investors concerning the Fund’s assets and performance, including providing potential
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`investors with fabricated audited financial statements for the Fund.
`
`A.
`
`36.
`
`Defendants Misappropriated Fund Assets Through The HCM Account
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`Contrary to the Fund’s operative documents and representations to investors and
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`CNB Bank, by at least November 2019, Defendants instructed certain investors by telephone to
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`send their investments to the HCM Account at CNB Bank. From there, Defendants simply
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`misappropriated these funds by transferring them to their personal and other non-Fund accounts.
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`8
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`Case 1:20-cv-00154-SPB Document 2 Filed 06/16/20 Page 9 of 20
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`37.
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`By doing so, the Fund Defendants violated the Fund’s LPA custody provisions,
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`which required that the Fund maintain all un-invested money in Fund bank accounts segregated
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`from any other money. It also had the effect of permitting Defendants to make use of such funds
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`outside of Administrator A’s supervision and monitoring. The misappropriations also
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`contravened the representations in the PPM as to how investor proceeds would be used.
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`38.
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`In all, since Defendants began receiving money for the Fund in July 2019, the
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`HCM Account has received $31 million from third parties. Since July 1, 2019, Defendants
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`transferred almost $26 million from the HCM Account to their personal accounts, or over 80
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`percent of the funds in the HCM account during that period.
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`39.
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`In contrast, since September 25, 2019, Defendants transferred approximately
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`$930,000 to a Fund account, and only approximately $65,000 since September 25, 2019.
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`40.
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`Based on bank records, Defendants have misappropriated at least $3 million from
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`two investors, Investors A and B, and additional bank activity suggests that they have
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`misappropriated millions more from many additional investors.
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`41.
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`For example, Shane solicited Investor A to invest in the Fund in or around
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`November 2019. Prior to Investor A’s investment in November 2019, the Fund Defendants
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`provided Investor A with the LPA, PPM, and materials reflecting positive returns. Investor A
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`understood that he invested a total of $2 million into the Fund between November 2019 and
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`January 2020.
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`42.
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`However, the Fund’s administrator did not include him as a limited partner in the
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`Fund for 2019. At Shane’s direction, Investor A sent his Fund investment by wire to the HCM
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`Account, not a Fund account. Each time Investor A sent money to be invested in the Fund,
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`9
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`Case 1:20-cv-00154-SPB Document 2 Filed 06/16/20 Page 10 of 20
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`Defendants quickly misappropriated most, if not all, of it by moving it to their personal accounts
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`at CNB Bank.
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`43.
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`For example, on November 8, 2019, Investor A wired $400,000 from an
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`investment account to the HCM Account, which only held approximately $41,000 in other funds
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`at the time. That same day, Defendants wired $200,000 to Shane’s personal account and wrote a
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`$200,000 check that was deposited in Sean’s personal account. Defendants did not send any of
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`Investor A’s money to a Fund account.
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`44.
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`On November 12, 2019, Investor A sent $600,000 to the HCM Account, which
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`only held approximately $62,000 in other funds at the time. That same day, Defendants wired
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`$300,000 to Shane’s personal account and $300,000 to Sean’s personal account. Defendants did
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`not send any of Investor A’s money to a Fund account.
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`45.
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`Subsequent to Investor A’s November 2019 investments, the Fund Defendants
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`provided Investor A with materials claiming that he had positive returns on his investments.
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`46.
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`On January 14, 2020, Investor A sent another $1 million to the HCM Account,
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`which only held approximately $2,600 in other funds at the time. That same day, Defendants
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`wired approximately $357,000 to Shane’s personal account and approximately $357,000 to
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`Sean’s personal account. Defendants did not send any of Investor A’s money to a Fund account.
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`47.
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`Similarly, Shane solicited Investor B to invest in the Fund in or about April 2020.
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`Shane provided Investor B with the LPA, the PPM, and materials indicating positive net returns
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`for the Fund. Bank records indicate that, as with Investor A, Defendants similarly
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`misappropriated Investor B’s $1 million investment. On April 3, 2020, Shane instructed Investor
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`B to send funds to Defendant HCM. Investor B then wrote two checks totaling $1 million to
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`10
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`Case 1:20-cv-00154-SPB Document 2 Filed 06/16/20 Page 11 of 20
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`Defendant HCM. Defendants deposited Investor B’s $1 million in checks into the HCM
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`Account, which only held approximately $86,000 before the deposit.
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`48.
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`After receiving another approximately $1 million from other sources, on April 20,
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`2020, Defendants transferred almost $2.5 million to an energy company not identified in the
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`Fund documents and not involved in the trading of digital assets. This transfer left only
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`approximately $124,000 in the HCM Account.
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`49.
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`Defendants did not send any of Investor B’s money to a Fund account, and as of
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`April 20, 2020, Administrator A did not list Investor B as a limited partner.
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`50.
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`Beyond Investors A and B, bank records indicate that the Fund Defendants may
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`have fraudulently raised and misappropriated millions of dollars from other Fund investors.
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`Most wire transfers into the HCM Account do not indicate their purpose. But from July 1, 2019,
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`until May 22, 2020, the HCM Account received approximately $18.75 million from 17 different
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`third parties where the wire instructions that accompany the transfers specifically indicate that
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`the deposit was for an “investment,” related to the Fund, and/or otherwise originated from an
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`investment-related bank account such as a ROTH Individual Retirement Account (“IRA”) or
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`other brokerage account.
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`51.
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`Of these transfers, five of the individuals who transferred approximately $480,000
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`to the HCM Account sent at least one wire that expressly indicated it related to the Fund. The
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`transfers are as follows:
`
`a.
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`On February 4, 2020, the HCM Account received a $70,000 wire from an
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`individual who noted on the wire transfer, “for further credit to [individual’s
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`name], LP investor.” “LP” is a common abbreviation for “limited partner.”
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`Case 1:20-cv-00154-SPB Document 2 Filed 06/16/20 Page 12 of 20
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`b.
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`On February 5, 2020, another individual sent $25,000 to the HCM Account
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`with the following note, “Further Credit to High Street Capital Liquid Fund
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`Attention Shane Hvizdzak,” which appears to mean the Fund.
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`c.
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`Two wires on April 24, 2020, and May 15, 2020, totaling $200,000 from an
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`investment firm that note “Investment HSC”; and
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`d.
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`Wires from two individuals that name the Fund as the wires’ beneficiary.
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`52.
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`Consistent with Defendants’ misappropriation of Investor A’s and B’s funds,
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`Defendants typically sent most, if not all, of these funds to their personal accounts. For example,
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`on May 18, 2020, a married couple sent $10 million from their brokerage account to the HCM
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`Account, which at the time contained only approximately $37,500. That same day, Defendants
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`wired $8 million to Shane’s personal account, and all but approximately $625,000 of the
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`remaining funds to individuals and entities that are not digital custodians or trading platforms.
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`None of the $10 million received on May 18 went to the Fund.
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`53.
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`Similarly, before receiving two transfers totaling $220,000 on May 13 and 15,
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`2020, the HCM Account had a balance of only $37,544. On May 15, 2020, HCM wired exactly
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`$220,000 to Shane’s personal account.
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`B.
`
`54.
`
`The Fund Defendants Fraudulently Solicited And Sold Investments In The
`Fund
`
`The Fund Defendants also fraudulently offered and sold limited partnerships in
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`the Fund since at least November 2019 by making material representations to investors regarding
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`the Fund’s management fees and performance, as well as providing prospective investors with a
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`forged audit of the Fund’s purported financial statements .
`
`55.
`
`Pursuant to the PPM and LPA, dated November 15, 2019, and June, 1, 2019,
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`respectively, HSC and HSCP were entitled to compensation for managing the Fund consisting
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`12
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`Case 1:20-cv-00154-SPB Document 2 Filed 06/16/20 Page 13 of 20
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`of: (1) “Management Fees” equal to approximately 1.5 percent annually of each limited
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`partner’s share of the Fund’s net asset value, paid monthly, and (2) a “Performance Allocation”
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`equal to 30 percent of each limited partners’ net profit each quarter, subject to certain limitations.
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`56.
`
`The Fund Defendants continued to make these representations in the PPM and
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`LPA from November 2019 to the present despite the fact that the Fund Defendants, by
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`misappropriating Fund investments, repeatedly took amounts far in excess of the 1.5%
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`management fee.
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`57.
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`Additionally, in the third quarter of 2019, the Fund lost 17.12 percent and loses
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`continued into the fourth quarter, for a total loss of 24.5 percent in 2019. Because the Fund lost
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`money in 2019, the Fund Defendants were never entitled to a “performance allocation.” Again,
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`the PPM and the LPA contained these representations after November 2019 even though the
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`Fund Defendants continued to take, via misappropriations of investor funds, amounts far in
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`excess of the representations.
`
`58.
`
`In December 2019, Shane solicited Investor C to invest in the Fund. On
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`December 30, 2019, Shane sent Investor C several Fund documents, among them was a Fund
`
`summary that, among other things, represented that the Fund had achieved substantial profits
`
`each quarter. Specifically, Shane represented to Investor C that the Fund had 134.87 percent and
`
`100.77 percent returns trading in digital assets in the second and third quarters of 2019. These
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`representations were false. By the end of the third quarter of 2019, the Fund had lost 17.12
`
`percent of its value. The Fund Defendants appear to have sent similarly false performance
`
`results to Investor A in or around November 2019.
`
`59.
`
`The Fund Defendants also made numerous material misstatements when soliciting
`
`an investor in March and April 2020. At that time, the Fund Defendants were in discussions
`
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`Case 1:20-cv-00154-SPB Document 2 Filed 06/16/20 Page 14 of 20
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`with an investment adviser (“Investment Adviser A”) who had three clients interested in
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`investing in the Fund.
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`60.
`
`On or around March 13, 2020, Shane sent Investment Adviser A an investor
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`“pitch” presentation, which, among other things, claimed that, for the third and fourth quarters of
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`2019, the Fund had 100.77 percent and 92.90 percent gains, respectively.
`
`61.
`
`These representations were false. During these periods, the Fund had lost money:
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`17.2 percent in the third quarter and further losses each month in the fourth quarter, for a total
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`loss of 24.2 percent in 2019.
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`62. Without knowing the fraudulent nature of the Fund’s financial performance,
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`Investment Advisor A reviewed these performance figures and other Fund documents with his
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`clients. Investment Adviser A’s clients decided to invest a total of $2 million pending review of
`
`the Fund’s 2019 audited financial statements. On April 17, 2020, Shane sent Investment Adviser
`
`A the Fund’s purported audited financial statements for review, including the financial
`
`statements and an audit opinion from the auditor.
`
`63.
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`Investment Advisor A immediately suspected the financial statements and audit
`
`opinion were fabricated because they contained numerous irregularities to the standard format
`
`for audit opinions. Investment Adviser A contacted the Fund’s purported auditors, who
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`confirmed that they did not, in fact, perform any audit services or prepare any audit reports for
`
`the Fund. The purported auditor explained to Investment Advisor A that the firm provided only
`
`tax services to the Fund.
`
`64.
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`In addition to the fact Defendants’ fabricated the audit documents, the financial
`
`statements contained misstatements about the Fund’s performance. The financial statements
`
`claimed that the Fund had over $157 million in assets as of December 31, 2019, including $107
`
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`14
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`Case 1:20-cv-00154-SPB Document 2 Filed 06/16/20 Page 15 of 20
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`million in Gemini accounts. In fact, however, the Fund had only $2.2 million in cash and cash
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`equivalents, including only $0.53 at Gemini, as of December 31, 2019. They contained
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`additional false claims, including a representation that the Fund earned net income of
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`$132 million in 2019 when it had actually lost money.
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`65.
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`Investment Adviser A’s clients ultimately decided not to invest after receiving the
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`fabricated audited financial statements.
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`IV. Defendants Have Repeatedly and Recently Dissipated Investor Assets
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`66.
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`In addition to Defendants fraudulent conduct described in this Complaint,
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`Defendants have repeatedly and recently dissipated investor assets. In April and May 2020
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`alone, the HCM Account at CNB Bank received approximately $20 million from various third
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`parties including Investor B’s $1 million and over $15 million that was sent from either
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`brokerage accounts of individuals or otherwise indicated that the payment was for an
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`“investment.” From there, in April and May 2020, Defendants sent over $14.6 million of these
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`funds to Shane’s or Sean’s personal accounts at CNB Bank, where they were likely commingled
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`with other funds.
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`67.
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`Since July 2019, Shane and Sean have transferred nearly $18 million from their
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`personal bank accounts to their personal accounts with Gemini, a digital asset custodian and
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`trading platform. In April and May 2020 alone, Shane transferred $14.7 million from his
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`personal account at CNB Bank to a personal account with Gemini, including as recently as May
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`22, 2020.
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`68.
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`Defendants hold numerous accounts at digital asset custodians and trading
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`platforms including Gemini, Binance Holdings, Limited (“Binance”), and Bittrex, Inc.
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`(“Bittrex”). Digital asset custodians and trading platforms provide customers with accounts in
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`15
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`Case 1:20-cv-00154-SPB Document 2 Filed 06/16/20 Page 16 of 20
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`which they can hold and trade digital assets, such as Bitcoin, and exchange digital assets with fiat
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`currency. Once this fiat currency, in this case U.S. dollars, is exchanged for a digital asset,
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`Defendants can transfer the digital assets anywhere in the world with no bank and no
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`government forms.
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`69.
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`Defendants have, in fact, recently transferred millions of U.S. dollars of investor
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`money from the HCM Account at CNB Bank to their personal bank accounts and then to their
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`personal accounts at Gemini. From their personal accounts at Gemini, Defendants then
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`transferred the equivalent of millions of U.S. dollars to various custodians and trading platforms
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`including platforms outside the United States and to unattributed addresses on multiple
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`blockchains, such that, in some cases, the location of the holder(s) of such assets cannot be
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`determined.
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`70.
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`Between July 1, 2019, and June 14, 2020, Shane transferred more than $20
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`million from his Gemini personal account to various locations on various blockchains, including
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`more than $5 million between April 1 and June 14, 2020 to unattributed, non-custodial locations
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`on various blockchains.
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`71.
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`Defendants’ dissipation of assets continues to this day. Since June 1, 2020, Shane
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`has transferred approximately $2.4 million form his personal Gemini account to various
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`blockchain locations.
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`72.
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`As Defendants dissipated investor assets and continued to solicit new investors,
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`on June 3, 2020, Shane appeared to have notified some investors, by email, that the Fund “had a
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`great run over the past year,” but that he would close the Fund and liquidate Fund assets starting
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`on June 30, 2020. As of June 15, 2020, neither Investors A nor B received this notice.
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`16
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`Case 1:20-cv-00154-SPB Document 2 Filed 06/16/20 Page 17 of 20
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`FIRST CLAIM FOR RELIEF
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`Violations of Exchange Act Section 10(b) and Rule 10b-5 Thereunder
`(Against Defendants)
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`Paragraphs 1 through 72 are re-alleged and incorporated by reference herein.
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`Since at least March 2019, Defendants, directly or indirectly, singly or in concert,
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`73.
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`74.
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`in connection with the purchase or sale of securities and by the use of means or instrumentalities
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`of interstate commerce, or the mails, or the facilities of a national securities exchange, knowingly
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`or recklessly has (i) employed one or more devices, schemes, or artifices to defraud, (ii) made
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`one or more untrue statements of a material fact or omitted to state one or more material facts
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`necessary in order to make the statements made, in light of the circumstances under which they
`
`were made, not misleading, and/or (iii) engaged in one or more acts, practices, or courses of
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`business which operated or would operate as a fraud or deceit upon other persons.
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`75.
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`By reason of the foregoing, Defendants violated, and unless restrained and
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`enjoined will continue to violate, Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and
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`Rules 10b-5 thereunder, 17 C.F.R. §§ 240.10b-5.
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`SECOND CLAIM FOR RELIEF
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`Violations of Securities Act Section 17(a)
`(Against Defendants)
`
`
`
`76.
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`77.
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`Paragraphs 1 through 72 are re-alleged and incorporated by reference herein.
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`Since at least March 2019, Defendant, directly or indirectly, singly or in concert,
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`in the offer or sale of securities and by the use of the means or instruments of transportation or
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`communication in interstate commerce or the mails, (1) knowingly or recklessly has employed
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`one or more devices, schemes or artifices to defraud, (2) knowingly, recklessly, or negligently
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`has obtained money or property by means of one or more untrue statements of a material fact or
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`17
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`Case 1:20-cv-00154-SPB Document 2 Filed 06/16/20 Page 18 of 20
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`omissions of a material fact necessary in order to make the statements made, in light of the
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`circumstances under which they were made, not misleading, and/or (3) knowingly, recklessly, or
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`negligently has engaged in one or more transactions, practices, or courses of business which
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`operated or would operate as a fraud or deceit upon the purchaser.
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`78.
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`By reason of the foregoing, Defendants violated, and unless restrained and
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`enjoined will continue to violate, Sections 17(a) of the Securities Act,15 U.S.C. §§ 77q(a).
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`PRAYER FOR RELIEF
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`WHEREFORE, the Commission respectfully requests that the Court:
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`I.
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`An Order Temporarily and preliminarily restraining and enjoining Defendants from
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`violations of Section 17(a) of the Securities Act of 1933 [15 U.S.C. § 77q(a)] and Section 10(b)
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`of the Securities Exchange Act of 1934 [15 U.S.C. § 78j(b), and Rule 10b-5 thereunder, 17
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`C.F.R. § 240.10b-5.]
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`II.
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`Issue an Order temporarily and preliminarily freezing