SEC sues Root’s Wellness’ Clayton Thomas for securities fraud
The SEC alleges Root Wellness founder Clayton Thomas stole $730,000 from an investor back in 2019.
Rather than defend the SEC’s charges, Thomas has opted for a settlement.
As alleged by the SEC in their May 9th Complaint, Thomas told the investor funds ‘would be used to purchase certain medical devices called the TM-Flow System.’
The investment offer was made in 2019 through Thomas’ former company Personalized Healthcare Solution LLC.
Personalized Healthcare was administratively dissolved by the state of Tennessee in August 2022 and all of its known bank
accounts have been closed.
Thomas’ ruse was the invested in devices would be placed in medical offices and, through use by patients, would generate a return.
Specifically, Thomas (right) told the investor the devices cost $50,000 each and the investor could expect ‘a guaranteed minimum monthly payment of $1,100 per device.’
Thomas, however, made numerous misrepresentations to the investor, including overstating both the projected monthly returns from the Medical Devices as well as the cost to purchase each Medical Device.
Invoices revealed the actual cost of the devices was $12,500 each.
In addition to lying about the cost of the devices and projected returns, the SEC further alleges
Thomas misappropriated certain investor funds for his personal use by pocketing the difference between his actual cost of the Medical Device and the amount he told the investor it cost.
And while Thomas profited nicely from his scam;
The investor lost substantially all of its original investments as a result of Thomas’s misconduct.
Over the course of its investment, the investor received payments from Thomas totaling approximately $116,000.
By late 2019, Thomas stopped making any payments on the promissory notes with the investor.
The investor’s total losses were $614,000.
The SEC alleges Thomas’ conduct was fraudulent because he (quoted verbatim from the SEC);
- misrepresented or omitted multiple material facts in connection with the sale of the promissory notes to the investor;
- overstated expected investment returns to the investor, having little to no basis for the projected returns and failing to include past negative results;
- had no basis for his representation to the investor that the Medical Devices would generate a guaranteed minimum monthly return of $1,100; and
- knew that the investment would likely be far less profitable than what he told the investor it would be because he had prior experience with a previous investor in which the Medical Devices produced little to no return.
The SEC sued Thomas across three counts for violations of the Securities and Exchange Act.
The regulator sought a permanent injunction against Thomas, as well as disgorgement and civil penalties.
As previously stated, Thomas opted not to defend the SEC’s allegations. To that end a Motion to Approve Consent Judgment was also filed on May 9th.
The court approved Thomas’ settlement on May 10th.
As per a filed judgments on May 10th, Thomas and Personalized Healthcare Solution LLC are prohibited from
- committing further violations of the Securities and Exchange Act;
- employing any device, scheme, or artifice to defraud;
- making misleading statements or omitting information that would lead to statements being misleading; and
- engaging in business or business practices that would constitute fraud or deceit
Disgorgement and civil penalty amounts are to be determined pending a motion filing by the SEC.
BehindMLM notes the alleged fraud in the SEC’s Complaint took place “between February and June 2019”.
Thomas went on to launch Root Wellness, an MLM company selling “remedies”, in early 2020.
As per Thomas’ LinkedIn Profile, Root Wellness’ origins date back to July 2019:
It’s unclear whether Thomas used money he misappropriated from the investor to fund Root’s launch.
It’s also unclear what potential impact disgorgement and civil penalty payments might have on Root Wellness’ business operations.
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