July 21, 2021/US SEC
The Securities and Exchange Commission today charged Connecticut resident Rahulkumar M. Patel in connection with a fraudulent offer of securities related to a hotel renovation investment that was conducted through an online crowd funding site.
According to the SEC’s complaint, Patel organized a Connecticut company, DNA Lodging East Hartford LLC, to lease, renovate, and reopen a closed hotel located in East Hartford, Connecticut. The complaint alleges that between October and December 2018, Patel raised $2,750,500 from 70 investors he solicited to purchase securities in DNA on an online crowd funding platform. As alleged, Patel provided investors a private placement memorandum stating DNA would use $1,465,000 of the proceeds to acquire a lease in the hotel from the property owner. In fact, the complaint alleges, Patel acquired the lease from the property owner himself for $540,000 and assigned it to DNA for $1,465,000, pocketing the $925,000 difference. The complaint further alleges the documents that Patel provided investors failed to disclose his role in the acquisition of the lease or any compensation he might receive in connection with the lease, although it specifically enumerated other compensation to which he might be entitled. Patel allegedly concealed his actions from investors in DNA by operating behind several companies, including one that he organized under the same name as the property owner and used to interpose himself in the deal to acquire the hotel lease.
The complaint charges Patel with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC seeks an order prohibiting Patel from violating the antifraud provisions, directing him to disgorge ill-gotten gains and to pay prejudgment interest and a civil money penalty. The SEC also seeks an order that would require Patel to provide a copy of any final judgment obtained by the SEC to investors or potential investors under certain circumstances.
The SEC’s case is being handled by Ellen Moynihan, Sue Curtin, Rory Alex, Kevin Currid, and Martin Healey of the SEC’s Boston Regional Office.