SEC Order Asset Freeze For Nanban Ventures, LLC

The Securities and Exchange Commission (SEC) has made an important announcement today regarding the intervention in an ongoing fraud scheme targeting the Indian American community, which has amassed nearly $130 million in funds since April 2021. The alleged perpetrators of this fraudulent activity are Nanban Ventures LLC and its three founders: Gopala Krishnan (known as GK), Manivannan Shanmugam, and Sakthivel Palani Gounder, collectively referred to as the “Founders.” Additionally, three other entities controlled by the Founders are implicated in this scheme.

The SEC’s complaint, unveiled in the U.S. District Court for the Eastern District of Texas, asserts that the defendants managed to raise over $89 million from over 350 investors by promoting investments in purported venture capital funds, which were ostensibly overseen by the Founders through Nanban Ventures LLC. Furthermore, they raised more than $39 million from ten investors who directly invested in the other entities under the Founders’ control. The complaint alleges that the Founders exaggerated the profitability of these investments, disbursing over $17.8 million in fictitious profits, effectively operating as a Ponzi scheme. The complaint also accuses the defendants of misrepresenting Gopala Krishnan’s expertise and success in utilizing his trading method known as “GK Strategies.” Krishnan claimed in a YouTube video to have achieved returns of “more than a hundred percent,” while Nanban Ventures stated in its private placement memorandums that Krishnan would consistently outperform the S&P 500 Index. However, the complaint reveals that the actual trading returns using GK Strategies consistently fell short of these claims and, in many instances, resulted in losses.

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, commented on the case, describing it as a significant affinity fraud targeting numerous investors, particularly those from the Indian American community in the DFW area. Grewal emphasized that the defendants lured investors with false promises of unrealistic returns and misrepresented their investment strategies. He cautioned all investors to carefully verify the credentials of purported investment professionals and approach investments that promise extraordinary returns with skepticism.

The SEC’s complaint further alleges that Nanban Ventures and the Founders, functioning as investment advisers, breached their fiduciary duties by channeling over $70 million into companies controlled by the Founders, in addition to commingling these funds with more than $39 million from at least ten other investors. These commingled funds were then used for various purposes, including making Ponzi-style payments and compensating the defendants to the tune of $6 million.

Eric Werner, Director of the SEC’s Fort Worth Regional Office, noted the irony in the defendants’ use of the “Nanban” branding, which means “friend,” to solicit investments from individuals primarily of Indian descent. Despite this amicable branding, the defendants allegedly engaged in a deceitful operation, raising funds and providing false returns based on a foundation of falsehoods.

The SEC’s complaint includes charges against all defendants for violations of antifraud provisions under Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934, as well as Rule 10b-5. Additionally, the Founders and Nanban Ventures are charged with violating antifraud provisions under Section 206 of the Investment Advisers Act of 1940 and Rule 206(4)-8. The complaint seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and civil penalties against all defendants. Furthermore, it seeks an order prohibiting the Founders from serving as officers or directors of a public company.

If you suspect your advisor mismanaged your money or committed negligence or fraud, call Sonn Law Group for a free consultation at 833-912-3000 today.