Miami Entrepreneur Charged by SEC for Stealing Investors Money

The Securities and Exchange Commission has recently charged former Ernst & Young Entrepreneur of the Year Claudio Osorio with misleading investors as well as misappropriating investors funds for his own personal use. From March 2007 until at least March 2011, Osorio along with his CFO Craig Toll were in charge of InnoVida Holdings, LLC. The SEC is alleging that during the time mentioned, InnoVida raise approximately $16.8 million from at least five different investors who were sold securities in the form of units and loan instruments. The investments they were making were supposedly to help the business expand and grow, but the SEC is alleging that nearly half of the money raised was used to fund Osorio’s personal lavish lifestyle.

InnoVida was created in 2006 and was allegedly involved in manufacturing fiber composite panels as well as hurricane and fire proof building materials. Osorio recruited high profile individuals to sit on the board of directors in an effort to, according to the SEC, “add an air of legitimacy to InnoVida”. As a result of Osorio’s reputation in the business world and the board of directors he assembled, Osorio was able to raise approximately $16.8 million in three different manners. Osorio allegedly executed subscription agreements with at least to investors, selling shares at 25 cents per share to one of the individuals and 19.5 cents per share to another individual. Osorio also allegedly executed a promissory note with another investor for a total of $3.75 million. Lastly, Osorio allegedly sold portions of his stake in the company to at least two investors for a total of approximately $8.1 million.

In the process of raising the funds, Osorio allegedly misrepresented several factors about what the money would be used for and what the investments were worth as they related to shares in the company. In the pursuit of investments, Osorio allegedly over valued the company in numerous occasions, claiming for instance at one meeting that the company was worth $50 million, while at another meeting he claimed that it was worth $250 million. Osorio supported his statements by using alleged fraudulent pro forma financial statements provided by Toll which had vastly exaggerated cash and equity figures. The allegedly fraudulent valuations resulted in “bogus share prices” according to the SEC, which meant that Osorio would change the cost per share based on who the investor he was courting was. As part of his speech while courting investors, Osorio would allegedly tell investors that he was the largest shareholder in the company having personally invested tens of millions of dollars into InnoVida, this was according to the SEC, a “ruse” to entice investments. On other occasions, Osorio allegedly told investors that they should increase their investments because they would soon be bought out by a Middle Eastern sovereign wealth fund which could lead to alleged profits of up to 900%. Sadly, there was no Middle Eastern fund.

Through all of his alleged schemes, Osorio was able to raise $16.8 million from investors from which $8.1 million he allegedly proceeded to use for his own personal well being. According to the SEC, Osorio used the money to pay for, among other things, a “mansion on Star Island in Miami Beach, Florida, the mortgage on his Colorado mountain retreat, the loan on his Maserati, and country club dues”. All this was alleged paid for from this money instead of being used for the development of the company as the Secured Note and Warrant Purchase Agreement stated.

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