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Sec. and Exch. Comm'n v. LG Capital Funding LLC

SEC Plausibly Asserts Convertible Notes Are Securities; Defendants Acted as 'Dealers'

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DECISION & ORDER The Securities and Exchange Commission (“SEC” or the “Plaintiff”) brings this action against LG Capital Funding, LLC and Joseph I. Lerman (collectively, “Defendants”), as well as Daniel Gellman, Boruch Greenberg, and Eli Safdieh (together, “Relief Defendants”) for alleged violations of Section 15(a)(1) of the Exchange Act of 1934, 15 U.S.C. §78o(a)(1). See Compl., ECF No. 1. Before the Court is Defendants’ Motion to Dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. See Def. Mot., ECF No. 26. For the reasons to follow, Defendants’ Motion is DENIED. 1. Background LG Capital Funding, LLC (“LG Capital”) is a New York-based limited liability company that exclusively invests the capital of its three principals: Joseph Lerman, a managing partner and 50 percent owner; Daniel Gellman, a managing partner and 25 percent owner; and Boruch Greenberg, also a managing partner and 25 percent owner. Compl., ECF No. 1 at

12-15.1 On June 7, 2022, the Securities and Exchange Commission (“SEC” or “Plaintiff”) filed a complaint against Defendants LG Capital and Lerman (collectively, “Defendants”), as well as against Daniel Gellman, Boruch Greenberg, and Eli Safdieh (together, “Relief Defendants”) for alleged violations of Section 15(a)(1) of the Exchange Act of 1934, 15 U.S.C. §78o(a)(1) (“Exchange Act” or the “Act”). See id. The Complaint generally alleges Defendants acted as securities dealers, engaged in the business of buying and selling large volumes of penny stocks (a type of security)2 for their own account, without being registered with the SEC and without Defendant Lerman, LG Capital’s control person, associating with an SEC-registered dealer. Id.

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