SEC Alleges India-Based Operators of High-Yield Investment Scheme Used Social Media to Perpetuate Fraud

By Patricia Uceda, Fall 2014 Graduate Research Assistant

tajThe SEC recently announced charges against two India-based operators of a high-yield investment scheme that allegedly solicited investors through aggressive and pervasive pitches on social media networks such as Facebook, YouTube, and Twitter.  The purported investment management company was called “Profits Paradise” and was allegedly run by Pankaj Srivastava and Nataraj Kavuri.

The SEC alleges that Srivastava and Kavuri anonymously solicited investors for their company on social media by offering “guaranteed” daily profits. They allegedly claimed that the invested funds would be traded on foreign exchanges as well as in stocks and commodities, and that it was highly lucrative. In order to perpetuate this alleged fraud, they allegedly created a legitimate-looking “Profits Paradise” website, as well as accounts on various social media networks, to portray the profits as huge and the risk as minimal. The SEC alleges that their website alone attracted as many as 4,000 visitors a day as investors were lured in by the alleged misleading claims.

The SEC’s Enforcement Division determined that the guaranteed returns were false and that the investment had many common characteristics of an online HYIPs (high-yield investment program) scam. Srivstava and Kuvuri are alleged to have operated under fake names (Paul Allen and Nathan Jones) which they used when registering the website address. They allegedly used a pervasive marketing scheme that involved a legitimate-looking website and Twitter account steering investors to the website. They also allegedly used YouTube videos to detail their various investment plans, which were marketed as being of short duration (120 business days) and yielding large amounts of “hassle free income.”

The SEC has charged Srivastava and Kavuri with violations of Sections 17(a)(1) and (3) of the Securities Act of 1933. As we noted earlier this week, the SEC warns investors to use caution if they are approached with unsolicited investment offers online, and of the increasing use of social media by fraudsters to implement fraudulent investment schemes.