Correspondent
- SEC says fraudulent litigation finance scheme misled investors
- Money instead used for father-son duo’s personal expenses
The Securities and Exchange Commission is accusing two Florida men of defrauding investors out of $125,000 in a litigation finance scheme.
The agency on Friday sued Michael Chhabra and his father, Vineet “Vincent” Chhabra, in a federal court in Washington. SEC lawyers say the pair used money invested in their supposed litigation finance company as a personal slush fund.
The Chhabras promised investors returns and interest from lending money to law firms to finance mass tort litigation, according to the SEC. They allegedly used the funds instead for personal expenses, like rent, food, and travel, and to pay off debts from other ventures.
The Chhabras formed Tort Fund LLC in April 2019 to lend money to law firms actively litigating mass tort suits against manufacturers of household products and specific medical devices. They used specialty purpose vehicles to raise funds and advertised the investment opportunity on Facebook.
Tort Fund LLC did not provide any such funding, however, and did not enter agreements with law firms to do so, the SEC said.
Some of the $125,000 it garnered from three investors allegedly was used for legal fees for litigation against Michael Chhabra in bankruptcy proceedings, expenses to clean up Michael Chhabra’s online reputation, and purchases at restaurants, groceries, and retail stores. About $40,000 allegedly went into perpetuating the fraud and compensating individuals for soliciting additional investors.
Investors were ignored when they asked for information on their investments, according to the SEC. Tort Fund stopped maintaining an active website, social media presence, and functioning email address.
The SEC asked the court to order the Chhabras and their company to disgorge profits from the scam and pay civil penalties. The agency is also requesting that the Chhabras be permanently prohibited from serving as officers or directors of any companies that have a class of securities registered and required to file reports under the Exchange Act.
Earlier this week, the SEC filed a complaint targeting another alleged litigation funding scam. The agency is accusing a California woman of defrauding more than 20 largely Filipino American investors in a Ponzi scheme that raised $7 million to fund personal injury litigation.
The case is Securities and Exchange Commission v. Chhabra, D.D.C., 24-cv-02561, 9/6/24