SEC: GT Media Investors Allegedly Swindled Out of $3.3 Million
On July 1, 2019, the Securities and Exchange Commission (SEC) charged Kerry Hoffman (CRD#: 1061740), a former broker with LPL Financial, with securities fraud. According to the SEC’s press release and Kerry Hoffman’s BrokerCheck record accessed on September 5, 2019, he allegedly defrauded 46 investors out of $3.3 million by selling unregistered securities of GT Media, Inc. The SEC also alleges that Kerry Hoffman committed fraud with his childhood friend Thomas Conwell, who was barred from the securities industry in 2000 and later served time in prison for fraud. When GT Media hired Kerry Hoffman as an advisor, he allegedly didn’t inform LPL about his outside business activities. He couldn’t raise capital himself because he was affiliated with a registered brokerage firm, so he purportedly recommended Thomas Conwell. He allegedly didn’t tell GT Media about Conwell’s past.
GT Media produces web content catering towards mothers on the website Joy of Mom. According to the SEC’s complaint, “From its inception through at least July 2018, GT Media has earned little or no annual income.” Despite this, Kerry Hoffman allegedly sold stocks of GT Media to investors who were told that the company was poised to explode in value. (In reality, Hoffman allegedly loaned money to GT Media to keep the company operational.) According to the SEC, “Between August 2015 and January 2018, Hoffman offered and sold $550,000 of GT Media stock and $350,000 of GT Media convertible promissory notes to approximately five of his advisory clients.” In directing his clients to invest in a company not approved by his firm, Hoffman allegedly engaged in “selling away.” Brokers who engage in selling away often do so by selling promissory notes, which were offered in this case.
When deciding whether or not to invest in these promissory notes, investors were allegedly given false information about GT Media. Conwell allegedly told them them that two Fortune 500 companies were interested in the company. According to the SEC:
Among other things, Conwell told investors that two Fortune 500 companies were seeking to acquire GT Media, that the two companies were fighting over which company would acquire GT Media, and that GT Media had turned down an offer of $9 per share from one of the companies.
Unscrupulous brokers may also try to pressure investors; in the case of Thomas Conwell, he allegedly told investors that they had to act quickly, which should always give investors pause. As the SEC complaint goes on to state:
Conwell also told investors that GT Media was negotiating an agreement to be acquired in the range of $15 to $25 per share and led investors to believe that they needed to act quickly to buy GT Media stock before such an acquisition or initial public offering occurred. Contrary to Conwell’s representations, during the relevant time period, no other company or individual had expressed any interest in acquiring GT Media and GT Media had not taken any steps towards conducting an initial public offering.
Thomas Conwell told investors that he was not being compensated by GT Media, but in reality both he and Hoffman were receiving a 10% commission. Investors should always ask if their broker is receiving a commission.
In addition to failing to disclose their commissions, Thomas Conwell and Kerry Hoffman also sold investments to unaccredited investors. Only accredited investors—individuals with a net worth of $1 million or more, or an annual salary of $200,000 or more—can invest in private placements. Yet in the case of GT Media, at least four investors were not accredited; Thomas Conwell allegedly failed to make sure that all investors met the appropriate criteria.
Along with pursuing Kerry Hoffman and Thomas Conwell, the SEC is also going after GT Media, Inc. According to the SEC’s press release, “The SEC separately instituted a settled cease-and-desist proceeding against GT Media. According to the SEC’s order, between at least February 2013 and July 2018, GT Media raised approximately $4 million by offering and selling unregistered GT Media common stock to 55 investors. Without admitting or denying the SEC’s findings, GT Media consented to the SEC’s order, which finds that the company violated the registration provisions of Sections 5(a) and 5(c) of the Securities Act and imposes a cease-and-desist order and a $173,436 civil penalty.”
If you invested in GT Media, Inc. on the recommendation of Kerry Hoffman or Thomas Conwell, don’t hesitate to come forward and speak with a securities attorney knowledgeable about these matters. Call (877) 238-4175 or email firstname.lastname@example.org to speak to an attorney.