Gopala Krishnan, Manivannan Shanmugam, Sakthivel Palani Gounder, Nanban Ventures LLC, GSM Eternal LLC (a/k/a Northstars Fintech), Himalayan Fintech LLC, and Centum Fintech LLC[...]

U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 25922 / January 5, 2024

Securities and Exchange Commission v. Gopala Krishnan, Manivannan Shanmugam, Sakthivel Palani Gounder, Nanban Ventures LLC, GSM Eternal LLC (a/k/a Northstars Fintech), Himalayan Fintech LLC, and Centum Fintech LLC (a/k/a Sunshines Fintech), No. 4:23-cv-885-SDJ (E.D. Tex. filed October 5, 2023)

SEC OBTAINED EMERGENCY RELIEF TO HALT ALLEGED $130 MILLION FRAUD TARGETING INDIAN AMERICAN COMMUNITY

The Securities and Exchange Commission announced that on October 11, 2023, it obtained a temporary restraining order, an asset freeze, and other emergency relief to halt an ongoing fraud targeting the Indian American community that had raised nearly $130 million since April 2021. On November 30, 2023, the SEC secured a preliminary injunction, the extension of the asset freeze, and other ancillary relief.

The SEC's complaint, filed on October 5, 2023, in U.S. District Court for the Eastern District of Texas and unsealed on October 16, 2023, alleges that Nanban Ventures LLC, its three founders-Gopala Krishnan, Manivannan Shanmugam, and Sakthivel Palani Gounder (collectively, the "Founders")-and three other entities that the Founders controlled raised more than $89 million from more than 350 investors for investments in purported venture capital funds and more than $39 million from 10 investors for investments directly in the three other entities. The complaint alleges that the Founders overstated the profitability of the investments and paid investors at least $17.8 million in fake profits that were actually Ponzi payments. The SEC's complaint further alleges that defendants misrepresented Krishnan's expertise and success using his eponymous "GK Strategies" options trading method. According to the complaint, Krishnan claimed in a YouTube video that he achieved returns of "more than a hundred percent," and Nanban Ventures claimed in the private placement memoranda for its venture capital funds that Krishnan would manage the funds to generate returns that would "consistently overperform the S&P 500 Index." However, the SEC alleges that the actual trading returns using GK Strategies were, with few exceptions, lower than the returns of the S&P 500 index, lower than the percentage returns that Krishnan claimed in YouTube videos, and negative on numerous occasions.

The complaint also alleges that Nanban Ventures and the Founders were investment advisers who violated their fiduciary duties by causing the venture capital funds to make undisclosed investments of more than $70 million into companies that the Founders controlled. According to the SEC's complaint, the Founders commingled these funds with more than $39 million from at least 10 other investors and then used the commingled funds to, among other things, make Ponzi payments to investors and pay themselves at least $6 million.

The SEC's complaint charges all defendants with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and charges the Founders and Nanban Ventures with violating the antifraud provisions of Section 206 of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. In addition to the emergency relief it has already obtained, the SEC seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and civil penalties from all defendants. The SEC also seeks to bar the Founders from serving as officers or directors of a public company.

The SEC's ongoing investigation is being conducted by Akita Adkins, Clemon Ashley, Laura Bennett, and Jason Braun of the Fort Worth Regional Office under the supervision of Samantha Martin, Melvin Warren, B. David Fraser, and Eric Werner. The litigation is being conducted by Keefe Bernstein and Jason Reinsch.