U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23388 / October 16, 2015
Securities and Exchange Commission v. Donald J. Lester, Rubicon Alliance, LLC, CFI Fund, LLC, and NuPower, LLC (Defendants) and Equity Edge Preferred Income Fund I, LLC, Equity Edge, LLC, and Equity Edge Companies, LLC (Relief Defendants), Civil Action No. 1:15-cv-02301 (D. Colo., filed October 16, 2015)
SEC Charges Colorado Investment Firm and Its Manager with Fraud
The Securities and Exchange Commission today filed fraud and other charges in the United States District Court for the District of Colorado against Donald J. Lester and his self-described private equity firm Rubicon Alliance, LLC ("Rubicon"). According to the SEC's complaint, from approximately January 2010 through December 2014, Lester and Rubicon raised over $10 million through the sale of unregistered securities for two investment funds managed by them, CFI Fund, LLC ("CFI") and NuPower, LLC ("NuPower"). Previously, as alleged in the complaint, Lester was involved in the sale of unregistered securities for a group of investment funds known as Equity Edge, which was struggling to repay investors. Among other things, the SEC's complaint alleges that Rubicon had guaranteed Equity Edge's performance, and that Lester devised a fraudulent and undisclosed scheme to use $2.8 million of CFI investor funds to satisfy Rubicon's repayment obligations to the Equity Edge investors.
In addition, the SEC alleges that the CFI and NuPower offerings violated several registration provisions of the federal securities laws. As the complaint alleges, both the CFI and NuPower offerings were unregistered and not subject to any applicable exemption, CFI and NuPower acted as investment companies without registering with the SEC, and Rubicon and Lester effectuated transactions in securities without registering with the SEC as a broker or associating with a registered broker.
The complaint alleges that, based on this conduct, Lester, Rubicon, and CFI violated Section 17(a) 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 thereunder; Rubicon and Lester violated Section 15(a) of the Exchange Act and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder; Lester, Rubicon, CFI, and NuPower violated Sections 5(a) and (c) of the Securities Act; and CFI and NuPower violated, and Lester and Rubicon aided and abetted violations of, Section 7(a) of the Investment Company Act of 1940. The Commission's complaint seeks permanent injunctions, third-tier civil penalties, disgorgement plus prejudgment interest, and other relief. Further, the complaint names the Equity Edge funds as relief defendants.
The SEC's investigation was conducted by Michael J. Cates and Ian S. Karpel in the Denver Regional Office and the litigation is being handled by Mark L. Williams and Gregory Kasper.