The SEC has charged L.A.-based entertainment company Toon Goggles Inc., and its “recidivist founder” Ira Warkol for conducting a $19 million illegal securities offering. The SEC also charged Warkol for acting as an unregistered broker-dealer in connection with the offering.
Toon Goggles is a privately held company that offers access to cartoons through its online streaming service. According to the SEC’s complaint, the violations occurred between approximately August 2012 through late 2016, when Toon Goggles and Warkol held at least five private offerings through various entities, raising funds from approximately 400 investors
The SEC said that none of the securities Warkol offered and sold to investors on behalf of Toon Goggles were registered with the SEC, and none qualified for any of the exemptions from the registration requirements.
Warkol allegedly acted as an unregistered broker for the offerings, and set up boiler rooms inside Toon Goggles’ offices, purchasing lead sheets and hiring sales agents who were paid large commissions to solicit investors. The sales agents cold-called investors throughout the US soliciting investments using scripts and offering documents Warkol provided. Warkol allegedly relied on various forms of self-accreditation to determine if investors were accredited, including having investors fill out questionnaires about their financial background, but didn’t verify the information.
Warkol allegedly used the funds that he raised from investors to pay large commissions and transaction-based compensation to himself and the sales agents. According to the complaint, it was not uncommon for as much as 35% of investor funds from the five offerings to be used to pay commissions and finder’s fees. It also said Warkol personally received at least approximately $1.75 million in transaction-based compensation.
The SEC also said Toon Goggles failed to maintain accurate and complete records of its investors, the number of shares sold to each investor, and the amount of money raised from each investor.
Without admitting or denying the allegations in the complaint, Warkol has consented to the entry of a final judgment permanently banning him from further securities sales. Warkhol will return $2 million and pay an additional fine of $190,000.
The settlement is subject to court approval.