Sec. and Exch. Comm'n v. Pirello

MEMORANDUM AND ORDER On December 6, 2023, the Securities and Exchange Commission (the “SEC”) commenced the instant civil action against Defendants Raymond J. Pirrello, Jr. (“Pirrello”), Marcello Follano (“Follano”), Robert Cassino (“Cassino”), Anthony DiTucci (“DiTucci”), Joseph Rivera (“Rivera”), Prior 2 IPO Inc. (“Prior 2 IPO”), Late Stage Asset Management, LLC doing business as Late Stage Management (“Late Stage”), Pre IPO Marketing Inc. (“Pre IPO Marketing”), and JL Rivera Enterprises Ltd. (“JL Rivera Enterprises”) (collectively, “Defendants”), alleging that Defendants engaged in unregistered securities offerings whereby Defendants fraudulently solicited investor funds for the purpose of acquiring stakes in certain investment vehicles purportedly designed to purchase shares of private companies in advance of those companies’ potential initial public offerings (“IPO”). See generally Sec. & Exch. Comm’n v. Pirello, et al., No. 23-cv-8953 (KAM) (MMH) (“Civil Case”), (Civil Case, ECF No. 1, “SEC Compl.”) In connection with this allegedly fraudulent scheme, Defendants are alleged to have disseminated investor materials containing material misrepresentations and omissions relating to the fee structure for the advertised investments. (SEC Compl. 1.) According to the SEC Complaint, Defendants raised approximately $528 million from more than 4,000 investors between March 2019 and July 2022 within the Eastern District of New York and elsewhere. (SEC Compl. 2.) On the same day that the Civil Case was initiated, the Honorary Magistrate Judge James R. Cho issued an order unsealing a three-count Indictment returned by a grand jury sitting in the Eastern District of New York, which charged Pirrello with virtually identical conduct. See United States v. Raymond J. Pirello, Jr., No. 23-cr-499 (KAM) (JRC) (“Criminal Case”), (Criminal Case, ECF No. 1, “Indictment”). Before this Court is the January 19, 2024 motion by the United States, through the United States Attorney in the Eastern District of New York (the “Government”), to intervene in the instant Civil Case in order to seek a stay of civil proceedings pending the outcome of the Criminal Case. (ECF No. 25, “Govt. Mot.”) Neither the SEC nor Defendants have opposed the Government’s motion. For the reasons set forth below, the Government’s motion to intervene and for a stay of this action is GRANTED. BACKGROUND On December 5, 2023, the Government filed a sealed threecount Indictment charging Pirrello with one count of Conspiracy to Commit Securities Fraud in violation of 18 U.S.C. §§371 and 3551, one count of Conspiracy to Commit Wire Fraud in violation of 18 U.S.C. §§1349 and 3551, and one count of Securities Fraud in violation of 15 U.S.C. §§78j(b) and 78ff. The Indictment refers to several of the entities named as Defendants in the SEC Complaint, as well as Pirrello, who is listed both as a Defendant in the SEC Complaint and as the sole Defendant in the Indictment. (Indictment

1-7.) Upon application by the Government, the Indictment was unsealed on December 6, 2023. The Indictment describes a fraudulent scheme wherein “Pirrello, together with others…defraud[ed] investors and prospective investors in [connection with] securities offered by Late Stage through material misrepresentations and omissions relating to, among other things the existence and amount of fees paid by investors in stock offered by Late Stage and the methodology of setting prices for shares of stock offered by Late Stage.” (Indictment 12.) The Indictment describes Late Stage as “a series of investment funds…[that] invested in stock issued by privately held companies that, at the time of investment, purportedly anticipated either making an [IPO] or being sold to a larger business in the relatively near term.” (Indictment 1.) Among the “material misrepresentation and omissions” described, Pirrello is alleged to have “directed [] employees to depict the fund as having ‘no up front fees’” such that “[i]nvestors were [] led to believe that all their invested capital was used to purchase stock” when “[i]n reality, a fee ranging from 10-50 percent of each investment was extracted up front in the form of a markup to the price of the stock[.]” (Indictment