Martin Sumichrast

U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 25988 / April 30, 2024

Court Enters Final Judgment Against a Former North Carolina Fund Manager in Case Involving Undisclosed Conflicts of Interest

Securities and Exchange Commission v. Sumichrast, No. 3:22-cv-00246 (W.D.N.C. filed May 31, 2022)

On April 29, 2024, the U.S. District Court for the Western District of North Carolina entered final judgment against North Carolina resident Martin A. Sumichrast.

The SEC's complaint in this litigation alleged that Sumichrast became the sole manager of Stone Street Partners, LLC, a private fund, following the death of the fund's co-manager in December 2016. Beginning in 2017, the complaint alleges, Sumichrast caused Stone Street to enter into various transactions with himself and a publicly-traded company of which he was the CEO and Chairman of the Board of Directors ("the Company"). These transactions included: (a) Sumichrast doubling his salary from Stone Street, from $100,000 to $200,000, in each of 2017, 2018 and 2019; (b) Stone Street purchasing restricted shares of the Company from Sumichrast; (c) Stone Street purchasing shares of a privately-held vaping company from Sumichrast; and (d) Stone Street purchasing from the Company shares in a microcap company shortly before the Company's initial public offering ("IPO"). According to the complaint, the microcap company was heavily in debt and at risk of failing at the time Stone Street acquired the shares, and Sumichrast arranged this transaction to remove those shares from the Company's financial statements, thereby improving the Company's chances for a successful IPO.

The SEC alleged that each of these transactions presented conflicts of interest and, according to the complaint, Sumichrast failed to disclose them in advance to Stone Street or obtain the consent from a majority of Stone Street's investors for these transactions.

Without admitting or denying the allegations of the complaint, Sumichrast consented to a final judgment that permanently enjoins him from violating Sections 206(2) and (3) of the Investment Advisers Act of 1940, and orders him to pay disgorgement of $225,000, prejudgment interest of $50,000, and a civil penalty of $75,000.

The SEC's case was handled by M. Graham Loomis, Pat Huddleston, Robert K. Gordon, and Mark Eric Harrison of the Atlanta Regional Office.