Even-handed Thievery: SEC Sanctions Unregistered Investment Adviser for Fraudulent: I) Investment Advice, AND II) Filings for PPP Loans
Gregory Blotnick (“Blotnick”), age 35, is a resident of Palm Beach, Florida. He was the founder, sole owner, managing partner, and only employee of Brattle Street Capital, LLC, a New York limited liability company (“BSC”) headquartered in New York, NY. BSC is the unregistered investment adviser to a private investment fund, BSC Opportunistic Equity, LP, a Delaware limited partnership (the “Fund”), founded by Blotnick in June 2019, and headquartered in New York, NY. From June 2019 through February 2021, Blotnick and BSC (each a “Respondent” and collectively the “Respondents”) raised approximately $3 million from 47 investors. The Respondents used a private placement memorandum (“PPM”) with statements about profitability that the U.S. Securities and Exchange Commission (“SEC”), in an Administrative and Cease-and-Desist Proceeding instituted Aug. 16, 2022 (the “Proceeding”), called “false and misleading.” The Commission also claimed the Respondents “engaged in trading that was inconsistent with the trading strategy described in” the PPM as “focused on the ‘consumer/retail sector.’”
In response to the Proceeding, the Respondents submitted settlement offers that the SEC accepted and encompassed in the resulting Aug. 16, 2022, Order. The Order recites that by April 2020, Respondents had raised some $1.7 million from 36 limited partners who invested between $5,000 and $250,000 each, almost all of which was lost by trading short-term equity options and futures, rather than investing in the “consumer/retail sector.” Running short of money in the Fund, the Respondents determined to get cash infusions with the help of the federal government. From April 2020 through March 2021, Respondents applied for 12 forgivable loans under the pandemic induced Paycheck Protection Program (“PPP”). The Order states that Respondents “fraudulently obtained” approximately $4.5 million from these 12 PPP Loans, $4 million of which was transferred into the Fund, where again it was “ultimately lost.”
Compounding the double fraud, Blotnick, from April 2020 through January 2021, raised an additional $1.5 million from existing limited partners and 12 new “victims,” using “false statements about the assets and profitability of the Fund.” In addition, Blotnick commingled investor money with his own, and transferred $59,500 from the Fund to his personal bank account. In all, Respondents lost approximately $3 million of investor monies and some $4 million of PPP Loan proceeds in compulsively useless trading. On May 3, 2021, Blotnick informed the limited partners by e-mail that the Fund had been shut down. My Aug. 19, 2020, Blog “Are You Ready? Preparing Your Business for a Paycheck Protection Program (PPP) Loan Audit” describes at some length the federal government’s oversight programs designed to combat fraud in connection with PPP Loans. The Order does not detail how the Respondents came to the attention of regulators, but it is suggestive that on Oct. 13, 2021, Blotnick pled guilty in the Federal Court for the District of New Jersey to wire fraud and money laundering, and on June 7, 2022, he was sentenced to 51 months in prison. The following day, Blotnick again pled guilty, this time in the Supreme Court for the State of New York for violating the Martin Act involving securities fraud, and on June 9, 2022, he was sentenced to 1-3 years’ imprisonment, to run concurrently with the New Jersey court sentence.
The Proceeding charges the Respondents with violating Section 17(a) of the Securities Act of 1933, as amended; Section 10(b) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 thereunder; and Sections 206(1), (2), and (4) of the Investment Advisers Act of 1940, as amended for fraudulent securities sales and material misstatements. Respondents are ordered to cease-and desist from future violations of the cited securities laws. Blotnick is ordered by the Commission to disgorge his ill-gotten gains to the extent feasible, and to disgorge $59,500 together with prejudgment interest of $2,254.63. In addition, he is barred from working in the securities industry and from serving as an officer or director of a public company. BSC is censured.
One must subsume that Blotnick has skills as a salesman that allowed him to dupe both private investors and banks participating in the PPP Loan program. Perhaps, during his forced stay of over four years, he will reexamine his goals, his life, and his behavior. One can only hope.