SEC v. Fusion Hotel Mgmt. LLC, et al. was filed in the Southern District of California on December 14, 2021, claiming violations of the Securities Act of 1933 (“Securities Act”) and the Securities Exchange Act of 1934 (“Exchange Act”). The complaint alleges: (1) fraud in connection with the purchase or sale of securities in violation of Section 10b of the Exchange Act and Rule 10b-5 thereunder; and (2) fraud in the offer or sale of securities in violation of Section 17(a) of the Securities Act.

The Securities and Exchange Commission (“SEC”) brought this enforcement action against Defendant Denny Bhakta (“Bhakta”) and two entities that he founded and controlled, Defendants Fusion Hotel Management, LLC and Fusion Hospitality Corporation (together “Fusion” and, collectively with Bhakta, “Defendants”).

According to the complaint, Bhakta raised more than $15 million from investors for Fusion.  To solicit these investments, Bhakta told potential investors that Fusion would acquire blocks of hotel room reservations at major hotels at wholesale rates and resale those reservations to Fusion’s corporate clients for a profit.  Bhakta represented to investors that Fusion had a proven record of buying and selling hotel rooms for profit, going so far as providing fabricated bank statements to investors to evidence Fusion’s success.

But the Defendants were not buying and selling hotel room reservations at all.  Instead, in classic Ponzi fashion, Bhakta used a portion of the payments from new investors to pay prior investors.  Bhakta also used new investments for personal expenses including, but not limited to, gambling away millions of dollars at casinos.  The alleged Ponzi scheme collapsed in 2019 when Fusion began failing to make payments to certain of its larger investors.

This enforcement action seeks an injunction against the Defendants that prevents further violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 promulgated under Section 10(b) of the Exchange Act.  The enforcement action further seeks disgorgement of all funds received by the Defendants as a result of the Ponzi scheme, along with prejudgment interest on those funds.  Finally, the enforcement action seeks civil penalties against the Defendants under Section 20(d) of the Securities Act and Section 21(d)(3) of the Exchange Act.