• May 13, 2024
• Affinity Fraud
• Nanban Ventures

Investors often look for signs that they can trust their financial professionals – similar backgrounds, shared experiences or heritages can all help put people at ease when entrusting their money to a broker or a business. Unfortunately, there are unscrupulous actors who attempt to prey upon affinities, identities, and cultural markers to make them more appealing to their clients, without any legitimate business acumen or plans to stand by their promises. The Nanban Ventures fraud is one example of a way that scam artists can represent themselves as trustworthy experts and get away with millions of investor funds.

If you have been taken advantage of by your broker or financial advisor, there might be a way to win back some of your lost funds with the help of an investment loss law firm. At Wolper Law Firm, our experts have seen and heard it all when it comes to investment scams – and we have held many such bad actors accountable on behalf of our clients. Call us to find out how we use our expertise to stand up for investors who have been misled or had their finances mishandled by those unwilling or unable to do right by their clients.

SEC vs. the Nanban Companies: Case Background

The US Securities and Exchange Commission (“SEC”) recently filed a complaint in the US district court in the eastern district of Texas against Nanban Ventures, GSM Eternal LLC (“GSM”), Himalayan FinTech LLC (“Himalayan FinTech”), and Centum Fintech LLC (“Centum FinTech”) (together, the “Nanban Companies”). According to the complaint, founders Krishnan, Shanmugam, and Gounder (the “Founders”) targeted the Indian American community in Texas’ Dallas and Fort Worth (“DFW”) area to ultimately raise $130 million. The alleged Ponzi scheme (denied by the Founders) started in 2021 and targeted over 360 investors.

Who Are the Defendants?

The following are named as defendants in the Nanban Ventures complaint (the “Defendants”):

• Himalayan Fintech, a Texas LLC with its principal place of business in Plano.
• Nanban Ventures LLC, a Texas LLC primarily based in Plano, is co-owned by the Founders and one additional partner.
• GSM Eternal LLC, a Texas LLC primarily based in Plano. GSM is also known as NorthStars FinTech. The Founders are signatories to GSM’s finances and brokerage accounts.
• Centum Fintech, also known as Sunshines FinTech, is a Texas LLC primarily based in Plano. The company is also co-owned by the Founders.
• Gopala Krishnan, an individual residing in Frisco, TX. Krishnan owns and controls 42.5% of Nanban Ventures, 50% of GSM, 50% of Himalayan, and 50% of Centum.
• Minivannan Shanmugam, an individual residing in Frisco, TX. Shanmugam co-owns and controls 21.25% of Nanban Ventures, 25% of GSM, 25% of Himalayan, and 25% of Centum.
• Sakthivel Palani Gounder, an individual residing in Frisco, TX. Gounder owns 21.25% of Nanban Ventures, 25% of GSM, 25% Himalayan, and 25% of Centum.

According to the complaint, the Founders have relinquished control of the Nanban companies to their respective wives.

How Did the Founders Target the Indian American Community?

The founder Krishnan, who goes by GK, started by offering what he claimed to be proprietary “GK investment strategies” to friends and family. While these strategies promised to outperform traditional investments in the stock market, the dividends were instead largely paid out from influxes of cash funneled into the investors’ platforms by new individuals and families seeking in on the opportunity.

Krishnan used word-of-mouth efforts, as well as YouTube videos and free webinars to connect with the Indian American community based in the DFW area. The branding of Nanban Ventures also spoke to the larger affinity fraud scheme, as “nanban” means “friend” in the Indian language Tamil. Krishnan’s GK marketing was not only based around the idea that he had learned strategies to defeat market fluctuations, but also that he was committed to sharing them out of his own charitable ideals. In statements regarding the Nanban seminars, he shared:

“Now, why are we doing this? It all goes back. It all goes back to the Nanban philosophy. As I said, Nanban means a true friend who does the right thing without expecting anything in return.“

High-yield Promissory Notes

High-yield promissory notes played a prominent role in the alleged Nanban Ventures scam. Promissory notes have been flagged by the Financial Industry Regulatory Authority (“FINRA”), the nation’s largest securities dispute resolution forum, for their frequent connections to investment fraud. While not all promissory notes are fraudulent, they all are a form of debt investment used to raise funds. Investors give capital in exchange for the promise of high returns, fixed interest rates, as well as eventual repayment. When high-yield promissory notes are sold unregistered as securities, it can be even harder to track down those responsible for fulfillment.

The Defendants sourced high-yield promissory notes through their ties to the Indian business community. Between April 16, 2021 and July 18, 2023, the Founders had raised around $40 million in high-yield promissory notes.

GK Strategies

GK Strategies were marketed as too good to be true, which eventually turned out to be correct. Supposedly, founder GK (i.e. Gopala Krishnan) developed a “cash-flow formula” that allowed him to make money regardless of market conditions from his investments. He claimed that the five-tiered GK Strategy approach was so effective he had patented it, but would teach levels one and two for free via YouTube videos and the nonprofit Nanban Foundation. In reality, these efforts funneled new investors into his ongoing Ponzi scheme and gave credence to material misrepresentations he made to current clients.

Investment Contracts

The Founders solicited money from investors for five different venture capital funds (“VC funds”) in the technology and real estate fields:

1. Capital, with 105 investors and over $25 million raised
2. AAA, with 99 investors and over $5 million raised
3. Ganga, with 95 investors and over $19 million raised
4. Abundance, with just 6 investors and over $23 million raised
5. Nile, with 81 investors and over $16 million raised

 

Investment contracts in these VC funds were said to use GK Strategies in order to promise exponential returns and no loss. Investors were referred via the Nanban Foundation or through GK’s YouTube videos, as well as recruited from the Indian-American community. The VC fund investors relied on investment contracts, set at fixed returns of 18% per year over five-year periods. They had no say over how their money was invested, and many accepted reinvestment back into the pooled funds in lieu of profit distributions.

How Did the Defendants Raise Money?

The defendants misrepresented their expertise and the investments’ profit margins. At times, they claimed to offer VC funds into investment opportunities, like Nanban Chola’s deep sea drilling and natural gas pipeline, that did not exist at all. Instead, they lined their own pockets, making off with approximately $6 million while charging their clients 2% management fees for their fraudulent advice as largely unregistered financial advisors. They misused investment funds, misled investors, and recruited new members constantly to maintain the charade. How did they do it?

• Nanban Ventures misrepresented that the VC funds were highly profitable: For instance, GK told investors that investing using GK Strategies Levels One and Two would earn “double-digit returns of 20-25%”. At the same time, GK Strategies was also described as a conservative investment strategy that never lost capital. Krishnan asserted that his proprietary system always beat the stock market as well as the S&P 500 index.
• The Founders made interest payments that exceeded the amount listed on the investment notes: One of the ways that the Founders misrepresented the state of affairs to investors was by paying them back at times higher than the 18% return laid out in investment notes for the VC funds. This gave the impression of false profits, when in reality the SEC found that the VC funds actually earned at most a return of 2.2% during the investigatory period, while the Nanban companies suffered a net loss.
• The Defendants engaged in a Ponzi scheme: The SEC found that at least $17.8 million of the payments made to investors were actually sourced from new investors’ capital. There was simply no way for the companies to pay out the profit distributions and interest payments that were owed to their existing network without inducing new investors to contribute to the system.
• The Defendants used investor funds to compensate the Founders: The Founders received payments of approximately $6 million. An additional $2 million from the VC Funds was also used as compensation for partners and the management.
• The Founders failed to disclose control over certain “fintech” entities”: While Himalayan, GSM, and Centum are in reality entirely controlled by the Founders, they misrepresented that these companies were “outside investment opportunities” in the financial technology sector. The Founders used these shadow companies to purchase bonds and real estate, while making false profit distributions and issuing even more investor notes.
• The Founders commingled investor funds in the bank accounts of controlled entities: The Founders used related party notes to commingle more than $70 million of investor funds in bank accounts controlled by the Founders.
• The Founders and Nanban Ventures breached their fiduciary duties to the VC Funds: As investment advisors, the Founders had a fiduciary duty to act in their clients’ best interests. They failed in that obligation by misusing their investors’ money.
• GK misrepresented the AUM of Nanban Ventures: Krishnan vastly mischaracterized the Assets Under Management (“AUM”) of Nanban Ventures, as well as his own success. He asserted multiple times that the AUM of Nanban was in the billion-dollar range, saying in interviews and videos that “we have gone from zero to $2.5 billion in 17 months.” The SEC holds that even at the height of the scheme, assets held by Nanban as well as the Nanban companies never totaled more than $130 million in AUM.

What Emergency Relief Did the SEC Request?

The SEC asked for an asset freeze and temporary restraining order on the alleged fraudulent activity. It also requested that the Founders be prohibited from making further issuances, sales, offers, or purchases of securities (except on their own behalf, from their own private accounts) and that they disgorge their ill-gotten gains and make repayment to investors with interest. In the meantime, the Nanban companies sent out a notice to investors affirming their intent to honor all of their existing financial commitments, as well as provide more information to the SEC.

What is a Ponzi Scheme?

A Ponzi scheme is an investment fraud scheme where money is collected from new investors to fund payouts for existing investors. This ongoing cycle creates a purported legitimacy for the scam, as earlier investors continue to receive high payouts as long as new marks are exploited.

How to Avoid a Ponzi Scheme

As investors, you should watch out for these red flags that almost all Ponzi schemes have in common:

• Be skeptical about investments that sound too good to be true
• Research the company, broker, and financial advisor
• Understand the investment in its entirety by asking for details about where and how your money will be invested
• Compare the risks with the potential rewards of the investment
• Ask for written information about the company and all guarantees made, and maintain records of your exchanges in writing
• File a FINRA complaint if you suspect a scam
• Consult an unbiased, trustworthy, and knowledgeable third party, such as a Ponzi scheme lawyer for help

What is Affinity Fraud?

Affinity fraud occurs when investment crimes are directed towards a particular group or community, with the rationale being it will be easier to take advantage of those who are already predisposed to trust members of their community. For example, the Nanban companies targeted the Indian/South Asian community in the DFW area. In 2021, the defendant GK said in an interview posted on FunAsia Radio, “I figured out that this [GK] strategy works hundred percent of the time. I didn’t keep it with me because I believe in community growing together.”

Affinity Fraud Examples

Affinity fraud schemes target groups like church groups and other religious denominations, members of the military, university alumni, immigrant and racial groups, and more because the connections of shared trust and mutual goals allow scam artists to have unfettered access to a continual pool of new victims.

How to Avoid Affinity Fraud

You can avoid affinity fraud by always keeping the following concerns close at hand when faced with an investment opportunity:

• Use due diligence: Don’t rely on word-of-mouth recommendations when it comes to where you entrust your money. Make sure to always do your own research, both online and with FINRA BrokerCheck.
• Avoid high-return risk-free investments: Opportunities that seem too good to be true usually are.
• Take your time: Don’t let yourself be pressured into participating in a get-rich-quick scheme. Make sure that you feel comfortable with all of the players and details involved.

Did You Invest in Nanban Companies?

Because of this recent SEC investigation, financial recovery may be available for those who have invested in the Nanban companies. If you need help filing your claim for recovery, contact the offices of Wolper Law Firm today. Our legal experts have successfully helped our clients recover thousands to millions of funds misappropriated and misspent by fraudulent financial advisors.

How Can an Investment Fraud Lawyer Help Me?

After a scam, the most important thing is to recover your principal amount. Making a FINRA complaint with the help of an investment fraud lawyer is the best option for your fullest recovery possible. Because FINRA complaints do not involve the possibility of an appeal, it is important to work with a professional to navigate the filing and discovery process, and ensure that your complaint is done right the first time.

It can be difficult to collect damages after an investment fraud scheme, because most cases are resolved through a FINRA dispute instead of the courtroom. There are also generally few assets available to be distributed after a financial fraud, and many claimants. The Nanban case, for instance, involves at least 360 investors with a legitimate claim. This makes it crucial to work with an experienced investment fraud attorney who can help ensure that your case is timely filed in the appropriate jurisdiction and that you have the best chance possible for a full recovery.

Contact an Investment Fraud Attorney at Wolper Law Firm Today

If you have been taken advantage of by an investment fraud scam, contact one of our experienced securities fraud lawyers at Wolper Law Firm today. Our discretion, diligence, and determination on our clients’ behalf lead to results that speak for themselves. Contact our attorneys today for a complimentary and confidential consultation.