The Securities and Exchange Commission charged online auction portal Collectors Café for withholding distributions to its investors unless they signed agreements prohibiting them from reporting potential securities law violations to law enforcement—which would be a clear violation of the SEC’s whistleblower protection rules.
“We allege that the defendants attempted to cover up their fraud by holding investors’ money hostage until the investors signed agreements preventing them from seeking law enforcement intervention,” said Kurt L. Gottschall, director of the SEC’s Denver Regional Office. “Through the amended complaint, the Commission seeks to hold the defendants accountable for their fraudulent stock offerings as well as the separate claims for violations of the Commission’s whistleblower protection laws.”
The company’s CEO, Mykalai Kontilai, who also received independent charges from the SEC, was accused of filing a lawsuit against two investors who had apparently breached the insidious agreement.
The CEO also lied to investors and claimed that the capital they invested into Collectors Café was being used to pay Kontilai back for millions of dollars’ worth of loans he personally lent to the company, “when, in reality, he never lent the company the amounts that he claims.”
In May 2019, the SEC said that Kontilai diverted about $6.1 million of the $23 million raised in investor funds through his personal bank account to spend on a lavish lifestyle. Kontilai then attempted to conceal this fraudulent activity by creating fake documents for the SEC detailing his expenses, and falsely asserting that he had loaned millions of dollars to the company, the agency charged. The SEC froze the company’s assets at the time.
The SEC has been on a roll lately with suits related to fraudulent activity. Meridian Capital’s founder recently pleaded guilty for committing securities and investment advisor fraud in October 2019. Three managers of Mediatrix Capital Blue Isle Markets were charged with playing a similar hand to Kontilai by using investment funds to support a luxurious lifestyle.
Attempts to reach the company were unsuccessful.