The Securities and Exchange Commission charged LFS Funding Limited Partnership and individuals Stephen Michael Thompson, Steven Robert Comisar, Dale Jay Engelhardt, and Ross Gregory Erskine, all of the Los Angeles area, with engaging in fraud in connection with an unregistered offering of the partnership’s securities.
According to the SEC’s complaint, between May 2018 and May 2019, the defendants raised more than $618,000 from investors through an offering of limited partnership securities interests in LFS Funding. The SEC alleges that Thompson, an individual with a history of securities law violations, possessed undisclosed de facto control over LFS Funding despite others being named as nominal general partners to conceal Thompson’s involvement. The SEC further alleges that Thompson, acting on LFS Funding’s behalf, recruited and engaged Comisar, Engelhardt, and Erskine, none of whom were registered as a broker or dealer, as salespersons to solicit investors. As alleged in the complaint, the offering documents represented that investments would be used to fund two medical clinics. These documents were materially misleading because they failed to disclose that, in fact, investor funds would be used to pay more than $170,000 in total commissions to unregistered salespersons and that Thompson was engaged in a skimming scheme designed to divert a portion of investor funds to him through mark-ups charged on equipment and services provided by a supplier that he also controlled. LFS Funding also included materially misleading statements about who controlled the partnership and the compensation paid to salespersons in its Forms D filed with the Commission.
The SEC’s complaint, filed in the U.S. District Court for the Central District of California, charges each defendant with violating the registration provisions of Section 5 and the antifraud provisions of Sections 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. The SEC’s complaint also charges all defendants except LFS Funding with violating the broker-dealer registration provisions of Section 15(a)(1) of the Exchange Act and charges LFS Funding with aiding and abetting those violations. Dale Engelhardt is also charged with violating Section 15(b)(6)(B)(i) of the Exchange Act for violating a previously imposed associational bar. The complaint also names certain business entities associated with Dale Engelhardt or Ross Erskine as relief defendants.
LFS Funding Limited Partnership and Stephen Thompson have agreed to settle the Commission’s charges by consenting to the entry of judgments that permanently enjoin them from violating the charged provisions. The judgment against Thompson also permanently enjoins him from soliciting any purchase or sale of any security, participating in the issuance, purchase, or sale of any security, or acting as an officer or director, and imposes a civil penalty. The settlements are subject to court approval. The SEC seeks permanent injunctions, disgorgement plus prejudgment interest, and civil penalties against defendants Steven Comisar, Dale Engelhardt, and Ross Erskine, and disgorgement plus prejudgment interest from the named relief defendants.
The SEC’s investigation was conducted by James Thibodeau and was supervised by Amy Oliver. The litigation will be led by Casey Fronk and Tracy Combs.
The SEC’s Office of Investor Education and Advocacy has issued investor alerts on the red flags of investment fraud. There are various ways to report a potential fraud set out on the Office’s website.