SEC: Startup had 'no functional streaming service', raised $1.3m anyway
Asks Florida judge to sanction 'American-Latino centric version of Netflix’ for alleged fraud
The US Securities and Exchange Commission has charged a media company based in Florida with defrauding investors about its ability to stream content on a functioning media platform, and accused its CEO of misappropriating over $450,000 of investor funds.
According to the complaint [PDF], Oi2Go Media Technologies Inc and its founder, Anthony Michael Hernandez, began selling the Oi2Go stock around July 2018. The Commission said they aired a nationwide television ad that hyped Oi2Go's public offering, adding the securities were unregistered and claiming it broke several federal laws in the process.
The TV advert asked investors to "imagine if they had invested in Amazon, Facebook and Netflix when they were launched," claiming "Oi2Go is being touted as the American-Latino centric version of Netflix," and that "Oi2Go is the premier home and mobile OTT [over-the-top] platform for movies, TV and radio, catering to American Latinos everywhere."
The company and Hernandez then "fraudulently raised" $1.317 million from the sale of Oi2Go securities to approximately 750 investors, says the SEC. It also claims the founder had misappropriated over a third of the $1.3 million raised from the investors, using "at least $456,000 to pay numerous personal expenses." The regulator claims he used company cards, spending about $160,000 on meals, coffee, gas, personal travel and retail store purchases, and also made "jewelry purchases totaling $10,000 at stores such as Cartier. Finally, he made transfers via Zelle to his girlfriend totaling at least $18,206."
Oi2Go had an offering circular which "as a whole makes clear that the company (with $0 in operating expenses and $170 in cash) was very much non-operational and aspirational," said the SEC – but the ad "painted a different picture of the company."
Under Regulation A, it was supposed to disseminate all the relevant information in the ad, but instead inserted a disclaimer (in small print) informing viewers that Oi2Go had a qualified Reg A offering circular on file with the Commission, which the regulator said "deprived investors of critical material information regarding Oi2Go's lack of operational status."
It also had a promotional "roadshow deck" on the website of marketing firm americasnextinvestment, which represented the company as a functioning business which could stream American Latino content through its digital app.
Checks all the boxes
Although it unsportingly didn't provide a picture, the SEC complaint speaks of a comparative box checklist that was in the promo slide deck:
A chart in the Roadshow Deck labeled "Competitive Advantage" compares Oi2Go with Netflix, Hulu, YouTube, Amazon and other similar companies based on 14 criteria, with Oi2Go being the only one to have all 14 boxes checked. The first box is "Significant Mobile Presence." Another box—with Oi2Go being the only one having this advantage—was "Live TV." And Oi2Go and YouTube were the only ones marked as having "User Generated Content."
A page in the Roadshow Deck titled "Revenue Streams," it went on to say, lists advertising revenue, subscription revenue, live event revenue, licensing revenue, and "Transactional PPV-VOD" revenue. The complaint notes that "all items are discussed in present tense."
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The SEC also alleges Hernandez hired unregistered brokers as sales agents who worked in an investor call center for the Oi2Go securities offering and "attempted to evade broker-dealer registration requirements." The offering circular filed with the Commish in July 2018 stated that "commissioned brokers" were not engaged, it claims.
In March this year, Hernandez emailed a settlement letter to investors stating Oi2Go had become insolvent at the beginning of January 2019 and promising to refund their principal plus payment of a 20 percent "inconvenience fee." The SEC says he had no "reasonable basis" to make the promises, and never delivered the refunds.
The charges claim Oi2Go defrauded investors and offered unregistered offerings in violation of the Securities Exchange Act. The SEC has asked that it pay back "ill-gotten gains," stop selling certain types of federal securities, and pay civil penalties, among other things.
A summons was issued yesterday but no legal representation was listed for Hernandez at the time of publication. ®