Marchi Complaint
Marchi Complaint
Marchi Complaint
LARA S. MEHRABAN
ACTING REGIONAL DIRECTOR
SHELDON L. POLLOCK
SANDEEP SATWALEKAR
REBECCA REILLY
Attorneys for Plaintiff
SECURITIES AND EXCHANGE COMMISSION
New York Regional Office
100 Pearl Street, Suite 20-100
New York, New York 10004-2616
(212) 336-0051 (Reilly)
[email protected]
-against-
JURY TRIAL DEMANDED
MARK MARCHI,
Defendant.
Street, Suite 20-100, New York, New York 10004 (New York Regional Office) for its Complaint
against Defendant Mark Marchi (“Marchi” or the “Defendant”), residing at 19 Morford Place,
SUMMARY
1. Between February 2016 and September 2020 (the “Relevant Period”), Marchi,
through his pooled investment vehicle Precipio Capital, LLC (“Precipio”), defrauded investors
by lying about Precipio’s trading and investment performance and by misappropriating investor
funds.
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Precipio from at least 22 investors by falsely telling them he was profitably trading securities in
Precipio’s accounts. In fact, Marchi’s trading never generated the returns he promised, and for
entering thousands of fake trades into an electronic portal accessed by investors. Marchi
misappropriated the vast majority of investor funds by secretly using Precipio investor money to
pay over $1.4 million in disbursements to earlier-in-time investors and by diverting cash from
Precipio’s bank accounts to his own bank accounts which he subsequently used to pay, among
other things, his personal expenses, including rent, credit card bills, and monthly automobile
VIOLATIONS
4. By virtue of the foregoing conduct and as alleged further herein, Defendant has
violated Section 17(a) of the Securities Act of 1933 (the “Securities Act”) [15 U.S.C. § 77q(a)];
Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) [15 U.S.C.
§§ 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. §§ 240.10b-5]; and Sections 206(1), 206(2), and
206(4) of the Investment Advisers Act of 1940 (the “Advisers Act”) [15 U.S.C. § 80b-6(1), (2)
5. Unless Defendant is restrained and enjoined, he will engage in the acts, practices,
transactions, and courses of business set forth in this Complaint or in acts, practices, transactions,
6. The Commission brings this action pursuant to the authority conferred upon it by
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Securities Act Section 20(b) and 20(d) [15 U.S.C. §§ 77t(b) and 77t(d)]; Exchange Act Section
21(d) [15 U.S.C. §§ 78u(d)]; and Advisers Act Sections 209(d) and 209(e) [15 U.S.C. §§ 80b-
9(d), 80b-9(e)].
from violating the federal securities laws and rules this Complaint alleges he has violated;
(b) ordering Defendant to disgorge all ill-gotten gains he received as a result of the violations
alleged here and to pay prejudgment interest thereon; (c) ordering Defendant to pay civil money
penalties pursuant to Securities Act Section 20(d) [15 U.S.C. § 77t(d)], Exchange Act Section
21(d)(3) [15 U.S.C. § 78u(d)(3)], and Advisers Act Section 209(e) [15 U.S.C §§ 80b-9(e)]; (d)
permanently prohibiting Defendant from serving as an officer or director of any company that
has a class of securities registered under Exchange Act Section 12 [15 U.S.C. § 78l] or that is
required to file reports under Exchange Act Section 15(d) [15 U.S.C. § 78o(d)], pursuant to
Exchange Act Section 21(d)(2) [15 U.S.C. § 78u(d)(2)]; and (e) ordering any other and further
8. This Court has jurisdiction over this action, and venue lies in this District,
pursuant to Securities Act Sections 20(b), 20(d), and 22 [15 U.S.C. § 77t(b), 77t(d), 77t(d), 77v];
Exchange Act Sections 21 and 27 [15 U.S.C. § 78u and 78aa]; and Advisers Act Section 209(d)
[15 U.S.C. §§ 80b-9(d)]. Defendant, directly and indirectly, has made use of the means or
instrumentalities of interstate commerce or of the mails in connection with the transactions, acts,
practices, and courses of business alleged herein. Defendant may be found in, is an inhabitant of,
or transacts business in the District of New Jersey, and certain of the acts, practices, transactions,
and courses of business alleged in this Complaint occurred within this District, including the
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offer and sale of securities through broker-dealers located within the District.
DEFENDANT
relevant times, Marchi maintained de facto control over Precipio, including its bank and
brokerage accounts. In September 1998, Marchi pleaded guilty to felony charges of conspiracy
to violate the federal securities laws before the United States District Court for the Southern
District of New York. See United States v. Mark Marchi, No. 98-cr-00275 (S.D.N.Y.) (LAP).
Subsequently, in June 1999, Marchi was barred by New York Stock Exchange following a
hearing in which Marchi was found guilty of having engaged in acts detrimental to the interest or
welfare of the Exchange in violation of Exchange Rule 476(a)(7). See New York Stock
Exchange Hearing Panel Decision No. 99-35 (April 15, 1999). In October 2015, Marchi was
subject to an Administrative Consent Order (“Consent Order”) with the New Jersey Bureau of
Securities in connection with his operation of investment company Global Alliance Capital, LLC
(“GAC”). See In the Matter of: Global Alliance Capital, LLC and Mark Marchi (CRD #
10. Precipio is a Wyoming limited liability company with its principal place of
FACTS
12. Precipio’s marketing materials stated that Precipio employed a disciplined trading
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methodology with a particular focus on risk management that strived to earn investors net
13. These materials, as well as Precipio’s investor agreements, explained that Precipio
investors would be charged a quarterly management fee of 25%, calculated as a percentage of net
profits with reference to an investor-specific performance-based high water mark, only if new
quarterly trading profits exceeded the previous quarter’s net trading losses.
14. In addition, Marchi routinely orally communicated with investors and prospective
investors and reiterated the aforementioned representations regarding Precipio’s business model.
investors understood that their money would be pooled in Precipio and traded by Marchi.
16. Precipio maintained at least four brokerage accounts across the Relevant Period.
17. Marchi had unrestricted access to, and was the sole trader in, each of the
brokerage accounts.
18. Marchi used only a small portion of investor money for trading (i.e., only
19. In addition, Marchi’s trading was generally not profitable. Specifically, Marchi’s
trading in the Relevant Period yielded a net loss of approximately $161,022, and only $275,500
was ever transferred from Precipio’s brokerage accounts back to Precipio’s bank accounts for
20. With the exception of four trades executed in 2019, Marchi’s trading in all
Precipio brokerage accounts stopped in December 2018; however, as discussed below, Marchi
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21. Marchi falsely represented to investors in person, over the phone, by email, and
via text chats, that he was actively trading in Precipio’s accounts and that his trading was
profitable. Marchi invited certain investors out to dinner, told them their investments were
22. For example, throughout the Relevant Period, one investor (“Investor A”) had
periodic dinners with Marchi at which the two would discuss, among other things, Investor A’s
investments. Based on these conversations with Marchi, Investor A understood that Precipio
was performing well and agreed to make follow-on investments. In fact, Investor A sometimes
23. In addition, a March 9, 2020 email to multiple investors stated, “Therefore, we are
being optimistic and have covered our short trade in MCHP for a four-point gain. We have also
covered our long VXX trade for another four-point gain.” On March 12, 2020, one investor
(“Investor B”) who had previously received the March 9, 2020 email asked Marchi whether
Precipio was still long VXX. Marchi responded, “I took it off on the big push up. We emailed
you the market update. We made great money on VXX and MCHP. Still short SPY with a
hedge.” In fact, there had been no trades in VXX since February 2018 and, since September
2019, the total combined balance in all of Precipio’s brokerage accounts was a mere $320.
24. To hide the lack of profitable trading, to justify the continued collection of
documentation and caused false performance reports and Schedule K-1s to be distributed to
investors.
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information (e.g., trading profit and loss (“P&L”), trading fees, etc.) visible to each investor via a
26. To make it appear to investors that he was trading when, in fact, he was not,
27. Investors accessing the Portal believed these trades to be real and profitable when,
28. For example, as of August 25, 2020, the year-to-date account summary of
Investor B indicated that Precipio had executed a total of 44 trades resulting in a net profit of
$18,621 attributable to Investor B. In fact, during this time period, Marchi executed no trades
29. Marchi also prepared bogus market updates and performance reports and directed
one investor (“Investor C”), who introduced some of his friends to the Precipio investment
regarding investors’ opening cash balances, income earned, and expenses. The reports also
31. For example, on May 14, 2018, Investor C sent Investor B a performance update
stating that Investor B had earned a net profit of $19,827 in Q1 2018 which, according to the
email, was purportedly a net return of 10.40% (versus an S&P 500 return of -1.17% for the same
time period). The email set out that Investor B owed Precipio fees in the amount of $6,609 in
connection with these earnings. In fact, during this time period, Marchi placed no trades and
earned no profits.
32. Finally, Marchi provided false information to Precipio’s accountant such that
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Schedule K-1s provided to investors matched the fake P&L numbers he had provided to
and investment performance, investors agreed to pay unjustified management fees and also
34. Throughout the Relevant Period, Marchi told investors that he would use their
money to pay disbursements to investors and for non-Precipio related expenses. Specifically,
Marchi utilized over $1.4 million of investor money to fund disbursements to Precipio investors
36. For example, as of July 21, 2020, Precipio maintained an account balance of $93
in its primary bank account. Shortly thereafter, on July 27, 2020, the same Precipio account
received investment proceeds from one investor (“Investor D”) totaling $50,000. Rather than
use these funds to trade, Marchi used Investor D’s investment to pay disbursements to two other
Precipio investors as follows: Precipio made one $45,000 investor disbursement on July 28,
37. In September 2020, Marchi solicited additional funds from Investor D and again
38. Specifically, on September 15, 2020, the balance in Precipio’s primary account
was -$16. On September 22, 2020, Precipio received an additional $75,000 investment from
Investor D. Subsequently, on September 25, 2020 and October 9, 2020 respectively, Marchi
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utilized Investor D’s investment to pay a total of $10,000 in disbursements to two other Precipio
investors.
39. Marchi also diverted large amounts of cash from Precipio’s accounts for his
personal use. Over the Relevant Period, cash deposits into Marchi’s personal bank accounts
totaled $407,389, compared with cash withdrawals from Precipio’s accounts totaling $476,790.
40. In addition, Marchi spent over $18,000 of investor money at various high-end
eateries.
41. The Commission re-alleges and incorporates by reference here the allegations in
42. By engaging in the acts and conduct alleged above, Defendant directly or
indirectly, singly or in concert, in the offer or sale of securities and by the use of the means or
knowingly or recklessly employed one or more devices, schemes or artifices to defraud, (2)
untrue statements of a material fact or omissions of a material fact necessary in order to make the
statements made, in light of the circumstances under which they were made, not misleading,
and/or (3) knowingly, recklessly, or negligently engaged in one or more transactions, practices,
or courses of business which operated or would operate as a fraud or deceit upon the purchaser.
43. Defendant violated Section 17(a) of the Securities Act by, among other things,
about his trading in Precipio accounts and his misappropriation of investor funds.
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violated and, unless enjoined, will again violate Securities Act Section 17(a) [15 U.S.C.
§ 77q(a)].
45. The Commission re-alleges and incorporates by reference here the allegations in
46. By engaging in the acts and conduct alleged above, Defendant, directly or
indirectly, singly or in concert, in connection with the purchase or sale of securities and by the
national securities exchange, knowingly or recklessly (1) employed one or more devices,
schemes or artifices to defraud, (2) made one or more untrue statements of a material fact or
omitted to state one or more material facts necessary in order to make the statements made, in
light of the circumstances under which they were made, not misleading, and/or (3) engaged in
one or more acts, practices, or courses of business which operated or would operate as a fraud or
47. Defendant violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder
by, among other things, knowingly, recklessly or negligently making material misrepresentations
to Precipio investors about his trading in Precipio’s accounts and his misappropriation of
investor funds.
violated and, unless enjoined, will again violate Exchange Act Section 10(b) [15 U.S.C. § 78j(b)]
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49. The Commission re-alleges and incorporates by reference here the allegations in
50. By engaging in the acts and conduct alleged above, Defendant, directly or
interstate commerce, while acting as an investment adviser within the meaning of 202(11) of the
Advisers Act [15 U.S.C. § 80b-2(11)]: (1) employed devices, schemes, or artifices to defraud a
client or prospective client; and/or (2) engaged in transactions, practices, or courses of business
51. Defendant knew or was reckless in not knowing of the activities described herein.
52. Defendant violated Sections 206(1) and 206(2) of the Advisers Act by, among
investors about his trading in Precipio’s accounts and his misappropriation of investor funds.
53. By reason of the foregoing, Defendant has violated, and unless enjoined will
likely again violate, Sections 206(1) and 206(2) of the Advisers Act [15 U.S.C. §§ 80b-6(1) and
(2)].
54. The Commission re-alleges and incorporates by reference here the allegations in
55. Section 206(4) of the Advisers Act [15 U.S.C. § 80b-6(4)] provides that it is
unlawful for an investment adviser to engage in an act, practice, or course of business which is
fraudulent, deceptive, or manipulative, and that the Commission shall issue rules to define and
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prescribe measures to prevent such misconduct. Rule 206(4)-8 issued under the Advisers Act
[17 C.F.R. § 275.206(4)-8] provides that it is unlawful for an investment adviser to a pooled
investment vehicle: (1) to make any untrue statement of material fact or to omit to state a
material fact necessary to make the statements made, in light of the circumstances under which
they were made, not misleading, to any investor or prospective investor in the pooled investment
vehicle; or (2) to engage in any act, practice, or course of business that is fraudulent, deceptive,
or manipulative with respect to any investor or prospective investor in the pooled investment
vehicle. Rule 206(4)-8 defines a “pooled investment vehicle” to include “any investment
company as defined in Section 3(a) of the Investment Company Act of 1940 … or any company
that would be an investment company under section 3(a) of that Act but for the exclusion
provided from that definition by either section 3(c)(1) or section 3(c)(7) of that Act ….”
(citations omitted). Section 3(a) in turn includes any “issuer which . . . is or holds itself out as
violated Sections 206(4) of the Advisers Act and Rule 206(4)-8 thereunder by, among other
investors about his trading in Precipio’s accounts and his misappropriation of investor funds.
57. By reason of the foregoing, Defendant has violated, and unless enjoined will
likely again violate, Section 206(4) of the Advisers Act [15 U.S.C. §§ 80b-6(4)], and Rule
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WHEREFORE, the Commission respectfully requests that the Court enter a Final
Judgment:
I.
Permanently restraining and enjoining Defendant and his agents, servants, employees and
attorneys and all persons in active concert or participation with them who receive actual notice of
the injunction by personal service or otherwise, and each of them, from committing future
violations of Securities Act Section 17(a) [15 U.S.C. § 77q(a)], Exchange Act Section 10(b) [15
U.S.C. § 78j(b)], and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5], and Advisers Act Sections
206(1), 206(2), and 204(4) [15 U.S.C. §§ 80b-6(1), (2), and (4)] and Rule 206(4)-8 [17 C.F.R. §
275.206(4)-8] thereunder;
II.
Ordering Defendant to disgorge all ill-gotten gains received directly or indirectly, with
III.
Ordering Defendant to pay civil monetary penalties under Securities Act Section 20(d)
[15 U.S.C. § 77t(d)], Exchange Act Section 21(d)(3) [15 U.S.C. § 78u(d)(3)], and Section 209(e)
IV.
that has a class of securities registered under Exchange Act Section 12 [15 U.S.C. § 78l] or that
is required to file reports under Exchange Act Section 15(d) [15 U.S.C. § 78o(d)], pursuant to
Securities Act Section 20(e) [15 U.S.C. § 77t(e)] and Exchange Act Section 21(d)(2) [15 U.S.C.
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§ 78u(d)(2)]; and
V.
Granting any other and further relief this Court may deem just and proper.
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Defendant,
Pursuant to Local Rule 101.1(f), because the Securities and Exchange Commission (the
“Commission”) does not have an office in this District, the United States Attorney for the
receive service of all notices or papers in the captioned action. Therefore, service upon the Chief
of the Economic Crimes Unit of the United States Attorney’s Office for the District of New
Jersey, 970 Broad Street, Newark, New Jersey 07102, shall constitute service upon the
LARA S. MEHRABAN
ACTING REGIONAL DIRECTOR
SECURITIES AND EXCHANGE
COMMISSION
New York Regional Office
100 Pearl Street, Suite 20-100
New York, New York 10004
(212) 336-0591
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-against-
MARK MARCHI,
Defendant.
Regional Office and am the principal investigative attorney working on this matter.
2. I make this Declaration because I am the counsel on this matter with the most
3. Pursuant to Local Civil Rule 11.2, I certify that the matter in controversy alleged
in the foregoing Complaint is not the subject of a civil complaint by private plaintiffs.
4. Pursuant to Local Civil Rule 11.2, I certify that the matter in controversy alleged
in the foregoing Complaint is the subject of a criminal action pending in the United States
District Court for the District of New Jersey, captioned United States v. Mark Marchi, 22-CR-
327 (CCC). The parties to that matter are Plaintiff United States and Defendant Mark Marchi.
5. The matter in controversy in the foregoing Complaint is not the subject of any
other action pending in any court, or of any pending arbitration or administrative proceeding, to
my knowledge.
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6. I declare under penalty of perjury that the foregoing is true and correct.