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SP Fund Ponzi Scheme Allegedly Defrauded 2,200 Investors of $410 Million

Securities Lawyer Jonathan Kurta
By: Jonathan Kurta Author

The SEC has alleged in a complaint that four formerly registered stock brokers banded together to create a Ponzi scheme that defrauded 2,200 investors of $410 million dollars. Brian Martinsen, Michael Castillero, Eric Lachow, and Francine Lanaia allegedly sold pre-IPO shares of private companies that they did not own. Messages between the former brokers indicate that they knew they did not own sufficient pre-IPO shares — or in some cases, any of the pre-IPO shares —that they used to lure in investors. Additionally, the investors allegedly paid exorbitant, undisclosed fees that served only to line the fraudsters’ pockets. Altogether, the fraud allegedly earned the former brokers $75 million.

To sell the pre-IPO shares, the former brokers created a fictitious broker-dealer called SP Fund Manager and another LLC called SP Adviser. Brian Martinsen, Francine Lanaia, and Michael Castillero served as the founders of Straight Path entities, the parent of SP Fund Manager and SP Adviser. Michael Castillero was the majority owner of both SP Adviser and SP Fund Manager. Eric Lachow served as a fund manager. Selling investments without a FINRA registration is a violation of The Securities Exchange Act of 1934.

The SEC has moved to freeze SP Fund Manager and SP Adviser’s assets, as well as the assets of each of the former brokers. Hopefully, the SEC will be able to return their ill-gotten gains to their defrauded investors.

Unregistered Stock Brokers

Unregistered brokers are not allowed to sell securities.  Investors should always check a broker’s registration by looking up their Central Registration Depository (CRD) number on BrokerCheck, FINRA’s publicly maintained database. If your broker does not want to give you the CRD number, or the information you find does not match what they provided, steer clear of their services.

What Are Pre-IPO Shares?

Investors seek out pre-IPO shares in hopes of getting the shares for a lower price than after the IPO. Because the pre-IPO shares are not yet publicly traded, investors have access to limited information about them, making them perfect for scams. The SEC has issued an investor alert regarding pre-IPO shares, encouraging investors to research both the financial professional and the product before purchasing.

SP Fund Manager

SP Fund Manager sold private investment funds that would purportedly allow investors to “gain access to pre-IPO investing opportunities at privately held companies and allow smaller investors to get in on portions of the investment.” The SEC alleges that Brian Martinsen, Michael Castillero, Eric Lachow, and Francine Lanaia told investors their money would be directed to a subdivision of the investment fund that owned a specific number of pre-IPO shares of private companies like Uber and Airbnb. Pre-IPO shares of these high-growth companies are highly sought after.

In some cases, the former brokers used the investors’ money to pay back earlier investors. Using new investor funds to pay off previous investors is the hallmark of a Ponzi scheme.

Brokers allegedly told thousands of investors that these investments either came with no fees or that they had waived the fees. Instead, Brian Martinsen, Michael Castillero, Francine Lanaia, and Eric Lachow paid themselves over $75 million. Additionally, they paid their sales agents nearly $48 million.

The Unraveling Fraud

Following an SEC subpoena, Michael Castillero cut off sales representatives’ access to their emails. He stated in an email that an “[a]n a**hole regulator would have a field day” with their emails. Brian Martinsen said, “We r going to claim they they [sic] don’t have emails and we don’t,” and “Just delete there [sic] emails.”

Brian Martinson, Michael Castillero and Francine Lanaia—Records of Misconduct

Brian Martinson, Michael Castillero, and Francine Lanaia knew each other from their time as registered brokers. It is noteworthy that these three brokers had significant histories of customer disputes and regulatory actions before being hired by their most recent respective firms. Investors beware: Many firms have unscrupulous hiring practices, and certain firms place their own interests ahead of their customers’ financial well-being.

Brian Martinsen FINRA BrokerCheck

Brian Martinsen has not had a broker registration since 2020 when his employment with SW Financial ended. He has seven investor disputes on his BrokerCheck record as well as three regulatory actions. These disclosures include allegations of unauthorized trading and excessive commissions. The most recent disclosure is from 2008—well before he was hired by SW Financial.

Michael Castillero FINRA BrokerCheck

According to BrokerCheck, Michael Castillero’s most recent registration was with Windsor Street Capital in 2017. By 2017, multiple investors alleged he had engaged in fraud, deceit, misrepresentation, unauthorized trading, and excessive commissions—among other types of misconduct. In February 2019, FINRA barred Michael Castillero following allegations that he had engaged in unauthorized trading and made payments to the investor in an attempt to settle the investor’s complaint without notifying the firm.

Francine Lanaia BrokerCheck

According to her BrokerCheck record, Francine Lanaia was barred by FINRA on July 24, 2018, following allegations that she failed to respond to FINRA requests for information. FINRA Rule 8210 requires stockbrokers to respond to requests for documents or testimony in the course of an investigation.

Francine Lanaia has filed for bankruptcy on two separate occasions. She has been the subject of two civil judgments and five investor disputes. Despite these disclosures, she was never terminated from any firm—including her most recent member firm, Windsor Street Capital.

Eric Lachow FINRA BrokerCheck

Eric Lachow does not have any disclosures on his record. His BrokerCheck reveals that he has not been registered as a broker since 2013, when he left Raymond James & Associates.

How Can Investors Avoid Pre-IPO Scams?

Investors should keep in mind that pre-IPO shares are usually not available to the public and are typically reserved for employees and early-stage investors. If you find a website offering pre-IPO shares that promise high returns, remember that investments that sound too good to be true probably are.

Securities Lawyer Jonathan Kurta
Written by: Jonathan Kurta

Jonathan Kurta is an accomplished securities attorney and a founding partner at Kurta Law.