SEC Charges Fintech Executive With Fraud to Fund Dairy Farm

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By Lydia Beyoud and Jennifer Bennett

The founder of mobile payments startup Mozido Inc. allegedly raised more than $55 million through investments in shell companies to fund everything from a dairy farm purchase to a film production, according to the SEC.

The Securities and Exchange Commission has charged Michael Liberty, his wife Brittany Liberty, their attorney George Marcus, and two others connected to the founder with securities fraud, according to a complaint filed March 30 in the U.S. District Court for the District of Maine.

The group allegedly persuaded investors to purchase unregistered interests in shell companies controlled by Michael Liberty that supposedly owned transferable interests in Mozido, the SEC said. The Austin, Texas-based company provides mobile payments software for the finance, telecom, and retail industries.

“In reality, the shell companies either did not own or were not permitted to transfer interests in the company,” the SEC said. Michael Liberty used four shell companies to issue securities and one shell company to purchase and distribute securities as an underwriter, the SEC said.

“Mr. Liberty will vigorously defend himself through the court system,” Jay A. Dubow, a partner at Pepper Hamilton LLP’s Philadelphia office who is representing both Michael Liberty and Mozido, told Bloomberg Law. Dubow is still reviewing the complaint, but said Liberty will deny the SEC’s allegations because of “factual and legal deficiencies.”

The SEC also alleged Michael Liberty and the others charged lied to investors about the company’s valuation and finances, and the amount the founder had personally invested in the company.

“As alleged in our complaint, these investments were sold as a chance to get in early with a seemingly promising fintech company,” Paul Levenson, Director of the SEC’s Boston Regional Office, said in a statement. “The prospect of investing in a non-public start-up company may hold considerable allure, but buyers need to understand what they are buying,” Levenson said.

Michael Liberty already owed the SEC hundreds of thousands of dollars in disgorgement stemming from a 2010 securities fraud settlement, the complaint said. Some of the money allegedly raised through shell company investments went toward paying off Liberty’s previous disgorgement tab.

Liberty previously had the disgorgement amount reduced, but misled the court and the SEC about his finances to do so, according to an October 2016 memo in that case.

Liberty didn’t disclose the past fraud settlement to shell company investors. When investors asked about it, he called the SEC allegations “entirely false” and himself a “victim,” according to the complaint.

The SEC has “unfairly targeted” Michael Liberty “for over six years,” Dubow said. “It has contacted investors, customers, financial institutions and others,” causing Liberty and Mozido to lose out on business opportunities, Dubow said.

“We look forward to the day when Mr. Liberty’s name is cleared,” Dubow said.

Liberty pleaded guilty in 2016 to making illegal presidential campaign contributions. He served four months in prison and paid a $100,000 fine for donating $22,500 in others’ names to an unnamed presidential primary candidate. The maximum an individual can donate to a federal candidate is $2,700 per election.

The SEC doesn’t explicitly suggest a connection between the illegally donated funds and Liberty’s alleged shell company investment scheme, although the complaint notes Liberty didn’t maintain a bank account in his own name.

The case is SEC v. Liberty , D. Me., No. 2:18-cv-00139, complaint filed 3/30/18 .

To contact the reporter on this story: Lydia Beyoud in Washington at lbeyoud@bloomberglaw.com; Jennifer Bennett in Washington at jbennett@bloomberglaw.com

To contact the editor responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com

For More Information

Text of the complaint is at http://src.bna.com/xvF.

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