This is mostly a classic run-away-with-the-money case, combined with a bunch of misleading statements and omissions. But there are a couple of interesting twists here.
What happened: Destiny Robotics Corp. raised funds under Regulation CF. The company used Wefunder’s “Lead Investor” structure, where the securities are held in an SPV and the Lead Investor makes decisions on behalf of the other investors. The Company said it was going to deliver a humanoid robot with extensive functionality within a very short time frame. It appointed a Lead investor who encouraged investment in the offering, but did not disclose that the Lead Investor was the founder’s sweetheart and a major investor.
It’s baffling as to why anyone thought the Company’s objectives were even achievable, given the extensive functionality and short time frame promised, and the founder’s limited experience. But people did invest in it (and the company even planned a second offering on a different intermediary’s site), the company predictably failed to meet its objectives and the founder used some of the investors’ funds for her MBA (she’s actually still at Berkeley Haas; really Berkeley?).
So in many ways it’s just a run of the mill fraud case, but there were a few things I thought notable from the complaint:
- The case seemed to arise from FINRA, not the SEC.
- The SEC characterized the Lead Investor role as a “fiduciary” one.
- Despite there being no specific disclosure requirement relating to the relationship between issuer and Lead Investor in Form C (which was created before Lead Investors were a thing), the SEC complaint looped that omission into a claim for misleading statements, which may be the way we see such omissions being treated by the SEC post the Macquarie Supreme Court omissions case.
But mostly I’m just baffled as to why anyone thought this was legit from the start.