SEC Charges Microcap Company, Its CEO, and Former Consultant with Fraud and Registration Violations

The Securities and Exchange Commission (SEC) has taken legal action against Native American Energy Group, Inc., its CEO, Joseph D’Arrigo, and David Hudzik, a former consultant of the company. The charges relate to violations of antifraud and registration components of federal securities laws, linked to a substantial offering fraud.

The SEC’s lawsuit contends that the defendants duped investors about how the investments would be used. The lawsuit alleges that the defendants enticed investors using a misleading subscription agreement that portrayed the subscription as an “investment in the Company.” Contrary to these claims, the lawsuit asserts that D’Arrigo, alongside the company’s stock sales representatives, including Hudzik, kept approximately 70% of the $3.43 million raised from investors between October 2014 and August 2020. Furthermore, the complaint claims that Hudzik falsely informed investors that he would only receive a commission after they had sold their shares in Native American Energy. In reality, Hudzik allegedly took commissions of 20 to 30% shortly after selling the investments. The complaint also alleges that D’Arrigo misused around $958,500 of investor funds for personal purposes, including cash withdrawals, wire transfers to himself and his wife, credit card bill payments, and various retail purchases.

The SEC filed its complaint in the U.S. District Court for the Eastern District of New York, charging Native American Energy Group, D’Arrigo, and Hudzik with contravening Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 under it. The complaint additionally accuses Hudzik of violating Section 15(a) of the Exchange Act. The SEC is seeking permanent injunctions, repayment of supposedly unlawful gains with interest accrued before judgement, and monetary penalties against each defendant. It is also pursuing officer and director bars as well as penny stock bars against D’Arrigo and Hudzik.

The SEC’s investigation was carried out by Christine Ely, Benjamin Mishkin, Diego Brucculeri, and Gerald Gross from the New York Regional Office and was overseen by Sheldon Pollock. The impending litigation will be managed by Preethi Krishnamurthy and Mr. Mishkin.