On March 6, 2020, the Securities and Exchange Commission obtained an asset freeze and other emergency relief against Florida-based investment adviser Kinetic Investment Group LLC and its managing member, Michael Scott Williams, in connection with an alleged fraudulent, unregistered securities offering that raised approximately $39 million from at least 30 investors located mostly in Florida and Puerto Rico.
According to the SEC’s complaint, filed in the U.S. District Court for the Middle District of Florida, Kinetic Group and Williams fraudulently raised millions of dollars by making material misrepresentations to investors who they solicited to invest in Kinetic Funds I LLC, a purported hedge fund that they managed. The defendants allegedly represented, among other things, that Kinetic Funds’ largest sub-fund invested solely in U.S.-listed financial products and that at least 90% of its portfolio was hedged using listed options. The SEC alleges, however, that Williams actually invested a significant part of the sub-fund’s assets in a private start-up company owned by Williams. The complaint further alleges Williams misappropriated at least $6.3 million through undisclosed loans to himself and his entities.
“Kinetic Group’s and Williams’ misrepresentations gave false comfort to investors that their investments would be secure and liquid,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “As alleged, however, Kinetic Group and Williams diverted a substantial portion of investor capital to Williams’ various business ventures and personal expenses.”
On March 6, 2020, U.S. District Court Judge William F. Jung granted the SEC’s request for emergency relief, including an asset freeze and an order for records preservation, against Kinetic Group, Williams, and a number of companies charged by the SEC as relief defendants. The court also granted the SEC’s request to appoint Mark Kornfeld as receiver over Kinetic Group and the relief defendants.
The SEC’s complaint charges Kinetic Group and Williams with violating the antifraud provisions of the federal securities laws. The SEC’s complaint also charges Williams, in the alternative, with aiding and abetting Kinetic Group’s violations of the federal securities laws. The SEC seeks injunctions, disgorgement of allegedly ill-gotten gains with pre-judgment interest, and financial penalties against the defendants.
The SEC’s investigation, which is continuing, is being conducted by Barbara Viniegra, John T. Houchin, and Crystal Ivory in the Miami Regional Office and supervised by Eric. R. Busto, Fernando Torres, and Glenn S. Gordon. The SEC’s litigation is being led by Christine Nestor and Stephanie Moot, under the supervision of Andrew O. Schiff. The SEC appreciates the assistance of the Florida Office of Financial Regulation and the Puerto Rico Office of the Commissioner of Financial Institutions.