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Law360 (June 3, 2020, 10:37 PM EDT ) The U.S. Securities and Exchange Commission filed suit against a purported internet investment adviser on Wednesday for failing to turn over its books while touting investment opportunities related to treatments and vaccines for COVID-19.
The agency claims the Miami-based E*Hedge Securities Inc. and its CEO Devon W. Parks have failed since April 14 to hand over copies of the firm's books or records in the course of an SEC examination and that the firm is not properly registered with the regulator to be an internet investment adviser.
The company recently "attempted to capitalize on potential investor interest in products and treatments for the recent coronavirus" by registering a website called Covid19Invest.com, the SEC said, but Park has attempted to use the coronavirus as an excuse for not complying with the SEC's examination requests and ducked inquiries from the agency's staff.
"To date, E*Hedge and Parks have failed to respond, produce any records or communicate further with the exam staff," according to the complaint in Florida federal court. "Although Parks claimed that the Florida [stay-at-home] order prevented him from cooperating with the examination, the Covid19Invest.com website posted new blog posts on April 10, 2020, and April 29, 2020, and hosted a free webinar on May 21, 2020, where participants can 'Learn How To Invest In Post Covid-19 Opportunities.'"
The SEC says it's had this trouble with Parks and E*Hedge before. Between October and November of 2017, just after E*Hedge filed an application for registration as an investment adviser, SEC staff in Los Angeles attempted to initiate an examination of the then-Nevada-based firm "but never received any response" despite numerous attempts to connect by telephone, the agency said.
"In November 2017, the exam staff attempted to send a document request list to E*Hedge in Las Vegas as part of that examination, but it was undeliverable despite efforts to update the address and obtain a new delivery address," according to the suit. "Thus, the exam staff was unable to complete its exam."
The firm and its CEO have now "thwarted attempts" at an examination by SEC staff in Miami, who have given the firm 45 days to comply with their requests. They reached out to E*Hedge on April 14, not long after it began operating COVID-19-related investment websites, to announce the examination and followed it a day later with an initial request letter, but Parks said on April 16 that he couldn't access the letter via email "due to the COVID-19 pandemic," the SEC claims.
"The exam staff told Parks that if he was unable to access the secure email, he should call back and provide a mailing address," the SEC said. "Parks did not call back or provide a mailing address."
In an April 20 call with exam staff, Parks said he'd seen the letter but gave a list of reasons for why he could not cooperate with the exam, including that doing so would risk violation of Florida's stay-at-home order. He didn't explicate why. The only information he did provide was that E*Hedge was a "developmental stage company," had no clients and had not raised funds, and that he may be traveling to Arizona to visit his unwell mother, the SEC said.
Parks asked the next day for an extension in producing the requested documents, and the SEC obliged, but in a phone call one day later, the CEO refused to answer any questions by phone and insisted they be put in writing, according to the complaint. The agency said it obliged, but hasn't heard from Park since.
Because E*Hedge has no clients and does not provide investment advice through its website, it does not qualify for registration as an investment adviser, the agency noted.
In addition to its lawsuit, the SEC motioned for a preliminary injunction on Wednesday, seeking an order for preservation of relevant documents, a hearing and, after the hearing, the immediate production of the requested documents.
An email to E*Hedge's website bounced back Wednesday evening. No other contact information for Parks was immediately available.
The SEC is represented in-house by Alise Johnson.
Counsel information for the defendants was not available Wednesday.
The case is SEC v. E*Hedge Securities Inc. et al., case number 1:20-cv-22311, in the U.S. District Court for the Southern District of Florida.
--Editing by Michael Watanabe.
For a reprint of this article, please contact reprints@law360.com.
