The Securities and Exchange Commission said Monday the CEO of Collectors Café used settlement agreements with aggrieved investors that illegally prohibited them from complaining to authorities about alleged fraud.
The SEC had already sued CEO Mykalai Kontilai for making false statements and misappropriating more than $6 million of $23 million raised from investors.
The agency filed an amended complaint (pdf) Monday in federal court in New York.
Kontilai and Collectors Café — a memorabilia auction business — required investors who wanted money back to warrant that they hadn’t complained to any law enforcement authorities (including the SEC) about potential securities law violations and wouldn’t complain in the future.
The gag provisions violated the SEC’s whistleblower protection rules, the SEC said.
Kontilai and Collectors Café “went so far as to sue two investors that they believed breached one of the illegal agreements,” the SEC said.
The CEO and company sought punitive and compensatory damages and “then flaunted to other investors the fact that they had sued investors for communicating with the SEC,” the complaint said.
Kontilai, 49, told investors he didn’t take any salary from Collectors Café. But the SEC said he diverted $6 million from the company to “fund his lavish lifestyle” — including “rent on an oceanfront condo in Miami, tuition at a private school in Las Vegas, expenses at gentleman’s clubs, stays at a luxury resort in Miami over New Year’s Eve, and various personal items at high-end stores such as Chanel, Louis Vuitton, Saks Fifth Avenue, Cartier, and Rolex.”
His wife Veronica, 46, never worked for Collectors Café. But the SEC complaint alleges she spent about $300,000 of the company’s money for personal expenses, including payments to a private school, rental car companies, taxis, movies, restaurants, and storage units.
Kontilai told investors he would use their money to create an auction website for collectables and produce a TV show based on the auction business, the SEC said. There’s a promo video for the TV show featuring Larry King but no episodes were broadcast, according to IMDB.
Collectors Café is a private company owned and controlled by Kontilai. It raised $23 million from 140 investors using “interstate commerce,” giving the SEC jurisdiction over potential securities law violations.
Kontilai allegedly gave the SEC an altered bank statement to conceal his misappropriation. It showed $5 million in a Collectors Café account instead of the actual balance of $1,000, according to the complaint.
The SEC wants penalties and disgorgement from Kontilai and Collectors Café for violating the antifraud and whistleblower provisions of the federal securities laws. The complaint also seeks disgorgement from Kontilai’s wife Veronica.