Compute power is all the rage with AI companies demanding more and more to run their extensive systems. How about investing directly in the chipsets? You could just buy shares in Nvidia.
Aaron Verdugo and his wholly owned entities, Verdugo Enterprizes, LLC dba BDaaSWorx and BDaaS Inc. had another way for investors to get in on the compute power demand. They would sell the chipsets directly to investors. The investors can then earn money directly from those buying compute power.
Of course, as with Mr. Howey and his orange groves, Verdugo could do the work for the investors of installing, housing and maintaining the chipsets, and contract with those looking for compute power.
The SEC alleged that “Investors were fully reliant on the Defendants to operate the data center, manage and maintain the chipset units, and generate the promised returns. As noted in BDX’s written sales presentations and on its website, the BDX Power Program promised investors “passive income,” that they could make money while they slept, and that their participation in the program required zero hours from them.”
That combination of a physical asset and required management services gets you right into the Howey test of whether what is being sold is a security.
- Investors invested money
- Investor money was pooled with other investors’ funds.
- Investors expected profits.
- Investors collectively relied on the efforts and expertise of Verdugo.
That would make it an unregistered securities offering.
Of course, it was worse than that. Verdugo did not actually have any of the compute power customers. So there was no income coming in.
Verdugo stole investor money and put it to personal use.
Verdugo settled with the SEC for disgorgement of $5,537,678 with prejudgment interest of $844,531, and a $236,000 fine.
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