On November 4, 2019, the SEC filed an amended complaint in the U.S. District Court for the Southern District of New York alleging that Collectors Café and its CEO, Mykalai Kontilai, unlawfully sought to prohibit the Company’s investors from reporting misconduct to the government. The amended complaint added to previously-filed charges that Collectors Café and Kontilai had made a fraudulent $23 million securities offering and that Kontilai had misappropriated over $6 million of investor proceeds.
According to the amended complaint, Kontilai, through Collectors Café, raised millions of dollars from investors by representing that he would use the money to develop a website to auction sports memorabilia. Instead, Kontilai allegedly misappropriated over $6 million for his personal use, and then fabricated documents designed to conceal the misuse of investor money. The complaint further alleges that when investors subsequently approached Kontilai to allege wrongdoing by him, Kontilai attempted to resolve these allegations by conditioning the return of investor money on the investors’ entering into agreements not to report potential securities law violations to enforcement authorities (including the SEC), and then brought a lawsuit against certain investors claiming that they had breached the confidentiality provision contained in these unlawful agreements.
As a result, the amended complaint charges Collectors Café and Kontilai with violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rules 10b-5 and 21F-17 thereunder. The SEC is seeking an injunction against Collectors Café and Kontilai, the payment of civil money penalties, and disgorgement of the ill-gotten gains from Collectors Café, Kontilai, and his wife (who allegedly received certain benefits derived from the misappropriated funds).