On September 24, 2021, the United States Securities and Exchange Commission (“SEC” or “Plaintiff”), represented by Christopher H. White, Craig R. Baune, and Timothy J. Stockwell, attorneys at SEC’s Chicago regional office, filed a civil enforcement action against Chip Alvin Rice (“Rice”), Carebourn Capital, L.P. (“Carebourn Capital”) (collectively “Defendants”) and Carebourn Partners, LLC (“relief Defendant”). Plaintiff filed suit seeking injunctive relief, civil penalties, and disgorgement of all ill-gotten gains along with pre-judgement interest for the alleged failure to comply with the mandatory dealer registration requirements of the federal securities laws by Defendants. This case was filed in the U.S. District Court in the District of Minnesota with Judges Patrick J. Schiltz and John F. Docherty presiding.
In the complaint, Plaintiff alleged that, “From at least 2013 through the present, defendants bought and sold billions of newly-issued shares of microcap securities (i.e., penny stocks) – and generated millions of dollars from those sales – but failed to comply with the mandatory dealer registration requirements of the federal securities laws. Defendants’ admitted business model has been at all relevant times to buy convertible promissory notes – a type of security – from penny stock issuers for their own account, convert the notes into newly-issued shares of stock, and quickly sell those shares into the public market at a profit. From just January 2017 through July 2021, Defendants purchased more than 100 such notes from approximately 40 different penny stock issuers located throughout the United States.”
Plaintiff further alleged that, “Defendants negotiated and received highly favorable terms for these notes, including terms that gave Defendants deep discounts from the prevailing market price for the shares of counterparty issuers. Defendants also negotiated and received fees from the issuers for putting the deals together, which Defendants directed be paid to Carebourn Capital’s general partner, relief defendant Carebourn Partners, LLC (“Carebourn Partners” or “Relief Defendant”). By engaging in a regular business of buying discounted convertible notes for their own account and then selling the resulting newly-issued shares of penny stock companies’ stock into the public market, Defendants operated as unregistered securities dealers.”
Plaintiff also alleged that, “From just January 2017 through July 2021, Defendants converted and sold over 17.5 billion shares of stock, generated more than $25.8 million in gross stock sale proceeds, and over $13.9 million in net profits, with many deals still outstanding. In violating the dealer registration requirements of the federal securities laws, Defendants avoided regulatory obligations for dealers that govern their conduct in the marketplace, including submitting to regulatory inspections and oversight.”
There are two claims for relief laid down by Plaintiff. The first claim is for the alleged violation of Section 15(a)(1) of the Exchange Act [15 U.S.C. § 78o(a)(1)]. The second claim is against Relief Defendant because Relief Defendant allegedly has no legitimate claim to the ill-gotten funds it received and charged to the issuers.
In its prayer for relief Plaintiff has requested the court to enter an order of permanent injunction restraining and enjoining Defendants. Plaintiff also requested the court to issue an order requiring Defendants and Relief Defendant to disgorge all ill- gotten gains with pre-judgment interest, issue an order imposing appropriate civil penalties upon Defendants, and issue an order permanently restraining and enjoining Defendants from participating in the offering of any penny stock.
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Pending - Other Pending
Patrick J. Schiltz
John F. Docherty
United States Securities and Exchange Commission
Carebourn Capital, L.P.
Chip Alvin Rice
Christopher H White
Attorney at Securities and Exchange Commission
175 West Jackson Boulevard, Suite 1450
Chicago, IL 60604
Craig R Baune
Attorney at United States Attorney's Office
300 S 4Th St. Ste 600
Minneapolis, MN 55415
Timothy J Stockwell
Attorney at Securities & Exchange Commisssion
175 W. Jackson Blvd, Ste 1450
Chicago, IL 60604
(#2) NOTICE of Appearance by Timothy J Stockwell on behalf of United States Securities and Exchange Commission. (Stockwell, Timothy) (Entered: 09/24/2021)
Civil Cover Sheet
(#1) COMPLAINT against Carebourn Capital, L.P., Carebourn Partners, LLC, Chip Alvin Rice filed by United States Securities and Exchange Commission. No summons requested. (Attachments: #1 Civil Cover Sheet) (Stockwell, Timothy) (Entered: 09/24/2021)
Docket(#3) (Text-Only) CLERK'S NOTICE OF INITIAL CASE ASSIGNMENT. Case assigned to Judge Patrick J. Schiltz per 3rd, 4th - Antitrust, Securities list, referred to Magistrate Judge John F. Docherty. Please use case number 21-cv-2114 (PJS/JFD). (KNK) (Entered: 09/24/2021)Read MoreRead Less
Docket(#2) NOTICE of Appearance by Timothy J Stockwell on behalf of United States Securities and Exchange Commission. (Stockwell, Timothy) (Entered: 09/24/2021)Read MoreRead Less
Docket(#1) COMPLAINT against Carebourn Capital, L.P., Carebourn Partners, LLC, Chip Alvin Rice filed by United States Securities and Exchange Commission. No summons requested. (Attachments: #1 Civil Cover Sheet) (Stockwell, Timothy) (Entered: 09/24/2021)Read MoreRead Less
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