Unregistered Securities and Allegations of Operating a Ponzi scheme

The SEC recently filed a complaint against Todd Burkhalter and Atlanta-based Drive Planning LLC. It alleges that from 2020 through June 2024, $300 million was raised for purported real estate investments from over 2000 investors. It is alleged that the the money was instead misappropriated to fund Burkhalter’s “lavish lifestyle” (including a $3 million yacht) and to make Ponzi-lie payments.

He is charged with violating antifraud provisions of federal securities law. He may soon face DOJ charges as well. The antifraud provisions of the federal securities laws prohibit the use of fraudulent statements or schemes in connection with the purchase or sale of securities. These provisions apply to all securities transactions, including exempt transactions, and to statements made orally or in writing.

The primary anti-fraud statutory provision is Section 10(b) of the Securities Exchange Act of 1934, which is codified in 15 U.S.C. § 78j. The SEC enforces this provision primarily through Rule 10b-5, which prohibits the use of any “device, scheme, or artifice to defraud”. Rule 10b-5 also imposes liability for any misstatement or omission of a material fact, or one that investors would think was important to their decision to buy or sell a security. A fact is considered material if there is a substantial likelihood that the information would have been viewed by a reasonable investor as having significantly altered the total mix of information available.

The U.S. Securities and Exchange Commission (“SEC”) and Department of Justice (“DOJ”) have been working together more often to combat unlawful tactics. They have thus strengthened their enforcement capabilities, leading to more effective identification and prosecution of insider trading and other securities violations.

If you have questions about whether or not you or your company are facing an investigation, contact us for further information. Our attorneys have represented many clients in SEC litigation and also when subsequent DOJ charges follow.