Market professionals are a current focus of Commission enforcement actions. While this is consisted with the “gatekeeper focus” mentioned by Chair Gensler recently, it is hardly new. A focus on gatekeepers as a way to leverage scarce resources traces to the earliest days of the Division of Enforcement. The theory is straight forward: If those with access to clients — attorneys, accountants and market professionals — comport with their professional obligations it helps stem the numerous instances in which unsuspecting members of the public place their trust in professionals only to get fleeced. The Commission’s most recent action in this area involved a former broker and a series of managed investment funds. SEC v. Burrell, Civil Action No. 1:21-cv-09422 (S.D.N.Y. Filed November 15, 2021).

Named as defendants are Joshua Burrell and Activated Capital, LLC. Mr. Bunnell is the founder and managing principal of Activated. Previously, he was a registered representative associated with a registered broker-dealer. Activated managed a fund that invested in properties in “Opportunity Zones” known as Fund II.

Opportunity Zones were established by Tax Cuts and The Jobs Act of 2017. Investors who have capital gains can put their funds into these Zones, which are economically disadvantaged, and obtain certain tax benefits. Activated promoted interests in Fund II. It also managed other funds.

From early 2019 through early 2021 Defendants raised about $6.3 million from fourteen investors for Fund II. When Mr. Burrell began marking interests in Fund II he made a series of misrepresentations. First, the investments were to be made in the name of Fund II which purchased Opportunity Zone properties. In many instances, however, Mr. Burrell misappropriated the funds. Properties were purchased in the name of other Activated entities.

In addition, the operating documents contained misrepresentations. The documents stated that investors would be paid distributions from funds generated by the underlying properties. In fact, distributions were made through the use of Ponzi like payments.

Finally, investors were told that Fund II had an outside custodian and that the principals of Activated had invested in it. Neither statement was true. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is pending. See Lt. Rel. No. 25263 (November 15, 2021).