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Securities and Exchange Commission v. Krimm

United States District Court, D. Delaware

May 28, 2019

MATTHEW A. KRIMM, et al., Defendants.


          Robert D. Mariani United States District Judge

         I. Introduction

         Presently before the Court is Plaintiff Securities and Exchange Commission's

         ("SEC's") Motion for Entry of Default Judgment (Doc. 9). For the reasons discussed below, the Court will grant the SEC's motion.

         II. Procedural History and Factual Background

         On April 25, 2017, the SEC filed a Complaint against Defendants Matthew A. Krimm ("Krimm") and his company, Krimm Financial Services, LLC ("KFS") (collectively, "Defendants"), seeking injunctive relief, disgorgement of ill-gotten gains, an award of prejudgment interest, and civil penalties for an alleged mortgage business investment scam. (Doc. 1). Defendants waived service of the Complaint. (Doc. 3, Doc. 4). Defendants never responded to the Complaint, and the SEC moved on September 7, 2017 for the Clerk of Court's entry of default, which was entered that same day. (Doc. 5, Doc. 6). The case was later assigned to this Court, and the SEC moved for entry of default judgment on June 8, 2018. (Doc. 9). On February 14, 2019, the SEC informed the Court that Krimm pled guilty in November 2018 to securities fraud and theft in a related criminal matter brought against him by the Delaware Department of Justice and that he is expected to be sentenced in the spring of 2019. (Doc. 14).

         The SEC's allegations in the Complaint, which the Court accepts as true in the absence of any response from Defendants, include the following:

During the relevant period, Krimm owned, operated, and controlled KFS.
From at least May 2012 through January 2014, Krimm and KFS fraudulently induced more than 25 investors, located in multiple states, including Delaware, Maryland, and Pennsylvania, to purchase at least $1.69 million in unregistered securities by falsely promising to use investor funds for KFS's purported mortgage business, and by making numerous other material misstatements and omissions.
Krimm marketed the securities in telephone calls, electronic mail, and face-to-face meetings with prospective investors, targeting customers of licensed mortgage lenders that had employed Krimm, including Lender 1 [a licensed mortgage lender based in Maryland at which Krimm worked as a loan officer from March 2012 until April 2013]. Many of the investors were financially unsophisticated with limited investment experience. Investors did not have access to the kind of information and level of detail that would be in a registration statement.
The securities that Krimm sold to investors took the form of "promissory notes," in which Krimm and/or KFS promised investors that they would receive interest payments as well as the return of their principal. Although the notes varied in form, they were substantially similar, and all of the investors were told that investor funds would be used for the purpose of expanding KFS's purported business.
Krimm solicited investors to purchase the securities using several different sets of written offering documents that he authored. The offering documents referred to the promissory notes as an "investment opportunity," and described KFS's purported mortgage business and the proposed terms of the offering.
Krimm and KFS stated in the offering documents that investors would receive interest, and, in some cases, also "profit sharing" or "additional bonus" payments. These payments varied based upon the length or amount of the investment.
Investors made payments of money to Krimm and/or KFS and, in exchange, received a promissory note signed by Krimm on behalf of himself, and/or KFS. Regardless of whether the promissory notes were issued solely in Krimm's name or in the name of KFS, Krimm told investors that investor funds would be used to finance KFS's purported mortgage business.
Krimm and KFS made material misrepresentations and omissions to investors relating to KFS's business operations, income, revenue, and profitability, as well as the use of investor funds and the source of payments to investors.
In written offering documents distributed to prospective investors to induce them to invest, Defendants falsely stated that:
a. KFS was licensed to lend in multiple states, ranging in number from nine to 42 states;
b. KFS owned and/or operated mortgage net branch offices in multiple states, including Delaware and Pennsylvania, and, in some offering documents, also claimed that KFS had offices in Texas, Maryland and/or New Jersey; and
c. KFS's net branch offices generated at least $10 million in mortgage loans per month, with some offering documents claiming a monthly mortgage loan ...

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