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SEC charges Silicon Valley man for start up fraud

The Securities and Exchange Commission today charged a Silicon Valley businessman raised millions for two Internet start-ups by falsely promising investors that his companies were on the verge of undergoing successful initial public offerings and were well on their way to becoming the “next Google.”

The SEC alleges that Benedict Van, of San Jose, Calif., lured investors into web-based start-ups hereUare, Inc. and eCity, Inc. by falsely telling them that the companies would go public within a matter of months and generate millions in quick returns. In truth, Van had no plans to take the companies public and relied solely on investor funds to stay in business. Ultimately, when investor funds ran out by the end of 2008, Van was forced to shut down operations.

According to the SEC’s complaint, filed in federal court in the Northern District of California, Van raised more than $6.2 million from investors for hereUare in 2007 and 2008, and raised $880,000 in investor funds for eCity in 2008. In presentations to prospective investors, chiefly in homes in Sacramento and Stockton, Van held himself out as a wealthy venture capitalist with prior IPO experience. Van told prospective investors that the companies had lucrative deals and patents, and that he had retained Goldman Sachs and an international law firm to help take the companies public within six months. According to the SEC, everything Van told prospective investors was false.

The complaint alleges that, by their conduct, Van, hereUare, and eCity violated Section 17(a)(2) of the Securities Act of 1933 (“Securities Act”) and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5(b) thereunder; Van and hereUare also violated Sections 5(a) and 5(c) of the Securities Act. The defendants’ signed consents — which are subject to approval by the court — provide that each defendant is permanently enjoined against future violations of the statutes and rules each is alleged to have violated. In addition, defendant Van’s signed consent provides that, without admitting or denying the Commission’s allegations, he is permanently barred from serving as the officer or director of a public company. The Commission waived disgorgement and declined to assess a penalty against Van based on his demonstrated inability to pay.