Michael Castillero has been named by the Securities and Exchange Commission in a stock fraud civil action alleging that Castillero and his partners offered pre-Initial Public Offering (IPO) of shares they did not own, pocketed undisclosed fees, and commingled investor funds, resulting in Ponzi scheme-like payments. According to the allegations, Castillero and his partners facilitated the scheme via an unregistered broker-dealer with a vast network of sales agents, raising at least $410 million from more than 2,200 investors from November 2017 through February 2022
FINRA Previously Barred Michael Castillero
In 2019, the Financial Industry Regulatory Authority (“FINRA”) barred Michael Castillero from acting as a broker or working for any registered brokerage firm because he failed to appear for testimony related to a FINRA investigation alleging that he was participating in unauthorized trading, false statements, and settling customer complaints under the table and out of the firm’s knowledge.
The SEC Pending Civil Suit
According to the SEC action, Michael Castillero was one of four individuals who solicited money from investors, using the new investors’ money to pay back older investors who expected a return. Instead of returning money to investors, however, the SEC alleges that Castillero and his partners used money from new investors to pay themselves. To continue to sell this unsuccessful investment scheme, the SEC claims that the brokers promised investors an interest in a division of one of nine private investment funds.
Castillero and his partners allegedly told investors that the phony investments were an opportunity for retail investors to own very hard-to-find pre-IPO shares that were not available on the public stock exchange. The sales agents promised investors that their investment was going to a specific series, with a specific number of shares, for a specific private company that could in the future be offered to the public on the public stock exchange.
Ultimately, the brokers were unable to obtain these pre-IPO shares that they promised to their clients, but instead of returning funds to investors continued to get more through new clients and commingled funds to make it appear as if there were more funds available. Eventually, this caught up with them, and when the SEC began investigating Castillero and others allegedly began deleting emails in an attempt to erase their involvement. The entire broker-dealer firm they were running this under was unregistered and they instead used sales representatives who were not brokers as a front to get around not being registered.
SEC Alleges Multiple Rule Violations
According to the SEC, Castillero and his partners violated Sections 17(a), 5(a), and 5(c) of the Securities Act, Sections 10(b) and 15(a) of the Exchange Act and Rule 10b-5 thereunder, and Sections 206 and 207 of the Advisers Act and Rule 206(4)-8 thereunder. In addition, Castillero is accused of aiding and abetting the Fund Manager’s and the Adviser’s violations of Securities Act Sections 5(a), 5(c), and 17(a), Exchange Act Sections 10(b) and 15(a) and Rule 10b-5 thereunder, the Adviser’s violations of Advisers Act Sections 206 and 207 and Rule 206(4)-8 thereunder, and Lachow’s violations of Exchange Act Section 15(a).
Customer Complaints against Michael Castillero
Castillero has a long history of Customer Complaints during his 14 years of experience as a stockbroker. These complaints range from fraud, misrepresentation, negligence breach of contract, elder financial abuse and breach of fiduciary duty, multiple unsuitable investments, churning, unauthorized trades, misstatements, material omissions, deceit, and breach of fiduciary duty.