District Court Finds Defendants’ Conduct to be U.S.-based on Receipt of International Investor’s Funds in U.S. Bank Account

The World in U.S. Courts: Summer 2013 - Securities Law Enforcement

Securities and Exchange Commission v. Graulich (U.S. District Court, D.N.J., June 19, 2013)

The Securities and Exchange Commission (“SEC”) filed a civil enforcement action against Defendants William Graulich and iVest International Holdings, Inc., alleging the violation of Section 10(b) of the Securities Exchange Act of 1934, 10(b)-5, and Section 17(a) of the Securities Act of 1933, in connection with Graulich’s alleged misrepresentations made in the course of a “high yield investor” scheme through iVest, a New Jersey based company. Investors in the alleged scheme included a United Kingdom citizen residing in Belgium. After the SEC’s filing of the instant enforcement action, the United States Attorney’s Office for the District of New Jersey charged Graulich in a parallel criminal case for the same conduct, and judgment was entered against him. The SEC moved for summary judgment. Defendants argued that they were not liable for fraud committed on the British investor because Section 10(b) does not apply extraterritorially. The court, however, found that Defendants’ scheme was conducted in the United States because, among other things, it involved the trade of domestic securities backed by domestic banks, and Defendants consummated every sale in the United States by receiving investor funds in iVest’s New Jersey bank accounts. Accordingly, the court granted the SEC’s motion for summary judgment.

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