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Case 1:26-cv-03408
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ANNA O. AREA
Attorney for Plaintiff
SECURITIES AND EXCHANGE
COMMISSION
100 F. Street NE
Washington, DC 20549
Telephone: (202) 551-6417
Email: aarea@sec.gov
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,
COMPLAINT
No. ___________
v.
JAY S. LUCAS and LUCAS BRAND
EQUITY LLC,
JURY TRIAL DEMANDED
Defendants.
Plaintiff Securities and Exchange Commission (the “Commission”), for its Complaint
against Jay S. Lucas (“Lucas”) and Lucas Brand Equity LLC (“LBE”) (collectively,
“Defendants”), alleges as follows:
SUMMARY
1.
Beginning in 2013 and continuing through the present, Lucas and LBE, the
unregistered investment adviser he controlled, fraudulently induced hundreds of individuals to
invest more than $50 million in three private equity funds they advised: Lucas Brand Equity LP
(“Fund 1”), Lucas Brand Equity Emerging Growth LP (“Fund 2”), and Lucas Brand Equity
Wellness Growth LP (“Fund 3”) (collectively, the “Funds”). Defendants told investors that their
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money would be used to make investments in early stage or startup companies operating in the
wellness, beauty, and skincare sectors.
2.
Defendants, however, did not use a substantial portion of investor money for the
promised investments. Instead, Defendants misappropriated millions of dollars to fund Lucas’s
personal expenses and outside business interests using investor funds as needed to support
Lucas’s lifestyle.
3.
Between 2017 and 2025 (the “Relevant Period”), Defendants misappropriated at
least $8 million of investor money. Lucas used investor money for, among other things, rent on
his residences, alimony payments, wedding expenses, personal real estate investments, payments
to a political consultant, and funding a New Hampshire newspaper he owned.
4.
Lucas often misappropriated funds by transferring money from Fund bank
accounts to a bank account for an entity owned by Lucas and his wife called XL7 Group, LLC
(“XL7”), which he operated as a slush fund masquerading as a business account that he could tap
for personal expenses. He also charged personal expenses directly to the Funds’ bank accounts.
5.
To induce investors, Defendants made material misrepresentations in the Funds’
offering materials about the use of investor funds, audits, and a third-party administrator. To
conceal their misappropriation of investor money, Defendants made additional material
misrepresentations to investors in quarterly reports and other communications about the use of
funds, management expenses, and the nature of Fund assets.
6.
Defendants also made multiple material misstatements and omissions regarding
Immunocologie, LLC (“Immunocologie”), a Fund portfolio company that received the largest
amount of investor funds. Immunocologie was a failing skincare company run by Lucas’s wife.
Defendants failed to disclose this financial conflict to all investors, falsely represented to
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investors that the Funds owned a percentage of Immunocologie, and repeatedly failed to reassess
the value of the company despite its declining financial results.
7.
Defendants are investment advisers to the Funds, and thus have important
fiduciary obligations to their clients, including duties of loyalty and care, which impose on them
an affirmative duty of utmost good faith and an obligation to provide full and fair disclosure of
all material facts. Defendants repeatedly violated these duties.
8.
Separately, Lucas misappropriated money from another investment vehicle he
controlled, Lucas FOV Holdings, LLC (“FOV Holdings”). Lucas created FOV Holdings as a
special purpose vehicle to invest in a Virginia-based company that produces handcrafted wooden
American flag decorations and other related products. In 2022 and 2023, Lucas raised more than
$2.5 million from investors for FOV Holdings and misappropriated a substantial portion of this
money for personal and unrelated business uses.
9.
As a result of the conduct alleged herein, Defendants have violated, and unless
restrained and enjoined will continue to violate:
10.
Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) [15
U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 340.10b-5];
Section 17(a) of the Securities Act of 1933 (“Securities Act”) [15 U.S.C. §
77q(a)];
Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940
(“Advisers Act”) [15 U.S.C. § 80b-6(1), (2), and (4)] and Rule 206(4)-8
thereunder [17 C.F.R. § 275.206(4)-8)].
Lucas is also liable for LBE’s violations of the Exchange Act as a control person
pursuant to Exchange Act Section 20(a) [15 U.S.C. § 78t(a)].
11.
The Commission respectfully requests, among other things, that the Court
permanently enjoin Defendants from further violating the federal securities laws as alleged in
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this Complaint, order Defendants to pay disgorgement, plus pre-judgment interest, and civil
penalties, and direct other appropriate and necessary relief.
JURISDICTION AND VENUE
12.
This Court has jurisdiction over this action pursuant to Section 22(a) of the
Securities Act [15 U.S.C. § 77v(a)], Section 27 of the Exchange Act [15 U.S.C. § 78aa], and
Section 214 of the Advisers Act [15 U.S.C. § 80b-14].
13.
Defendants have directly or indirectly made use of the means or instrumentalities
of interstate commerce and/or the mails, including the use of email, the internet, and telephone in
connection with the illegal transactions, acts, practices, and courses of business alleged in this
Complaint.
14.
Venue is proper in this District pursuant to Section 22(a) of the Securities Act
[15 U.S.C. § 77v(a)], Section 27 of the Exchange Act [15 U.S.C. § 78aa], and Section 214 of the
Advisers Act [15 U.S.C. § 80b-14].
15.
Certain of the acts, practices, and transactions and courses of business alleged in
this Complaint occurred within the Southern District of New York.
16.
Specifically, during the Relevant Period, LBE and the Funds conducted business
out of a residence Lucas maintained in Manhattan. Defendants also solicited investors in this
district and maintained bank accounts in this district that they used to receive investor funds.
DEFENDANTS
17.
Jay Scott Lucas (“Lucas”), age 71, is a resident of New York, New York, and
Portsmouth, New Hampshire. Lucas is the Co-Founder and Managing Partner of LBE and the
Chairman and Managing Partner of the Lucas Group LLC (“Lucas Group”), a boutique strategy
consulting firm he founded in 1991.
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18.
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Lucas Brand Equity LLC (“LBE”) is a Delaware limited liability company
formed on February 1, 2013, with its principal place of business in New York, New York. LBE
is a private equity fund adviser focusing on the wellness, beauty, and skincare sectors. Lucas and
his wife founded and own LBE, and Lucas manages it. LBE filed Part 1 of the Form ADV with
the Commission on May 6, 2025, as an exempt reporting adviser. LBE served as the general
partner for Funds 1 and 2 and as the investment manager for Fund 3.
OTHER RELEVANT ENTITIES
19.
Lucas Brand Equity LP (“Fund 1”) is a Delaware limited partnership formed
on August 23, 2013. From 2013 through at least 2018, Fund 1 offered and sold securities in the
form of limited partnership units. The purported objective of Fund 1 is “to generate significant
returns by acquiring, holding, operating, developing, licensing and selling assets …, brands and
businesses and engaging in related activities in the skin care, beauty and personal care products
markets and related industries.” LBE is the general partner of Fund 1 and is responsible for its
investment decisions and day-to-day operations.
20.
Lucas Brand Equity Emerging Growth LP (“Fund 2”) is a Delaware limited
partnership formed on October 20, 2017. From February 2018 through at least mid-2024, Fund 2
offered and sold securities in the form of limited partnership units. The stated objective of Fund
2 is identical to Fund 1. LBE is the general partner of Fund 2 and is responsible for its
investment decisions and day-to-day operations.
21.
Lucas Brand Equity Wellness Growth LP (“Fund 3”) is a Delaware limited
partnership formed on April 11, 2024. Fund 3 has, from June 2024 until as recently as October
2025, offered securities in the form of limited partnership units. Fund 3 claims to be “investing at
the dynamic intersection of health, wellness, personal care and longevity,” with a mission to
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“empower innovating startups that are redefining how individuals achieve optimal well-being
and extended healthy lifespans.” LBE acts as the “investment manager” for Fund 3 and another
Lucas-owned and managed entity, LB Equity GP, LLC (“LBE GP”), is the general partner.
22.
Lucas Group Capital, LP (“LGC”) was a Delaware limited partnership formed
on May 12, 2006. From 2006 through at least 2011, LGC offered and sold securities in the form
of limited partnership units. Another Lucas-owned entity, Lucas Group Capital LLC, served as
the general partner of LGC.
23.
Lucas FOV Holdings, LLC (“FOV Holdings”) is a Delaware limited liability
company created to raise funds to be invested in a Virginia-based company called Flags of Valor,
LLC (“Flags of Valor”), through the sale of membership interests via a private placement during
the period 2022 to 2023.
24.
XL7 Group, LLC (“XL7”) is a Delaware limited liability company formed in
August 2012 and located in Portsmouth, New Hampshire. Lucas and his wife own XL7, and it
has no employees.
FACTUAL ALLEGATIONS
I.
Defendants and Their Creation of the Funds
A.
Defendants Offered and Sold Securities
25.
From late 2013 through late 2025, Defendants raised more than $50 million from
more than 200 investors via limited partnership agreements in Funds 1, 2, and 3, as shown in the
chart below:
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Fund Name
Fund 1
Fund 2
Fund 3
Total
26.
Approximate
Amount Raised
$17.7 million
$28.7 million
$4 million
$50.4 million
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Approximate
Investors
100
100
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Fundraising Dates
Oct. 2013 – Jul. 2018
Feb. 2018 – Apr. 2024
June 2024 – Oct. 2025
To raise money for the Funds, Lucas solicited professional and personal contacts
and other individuals identified by third-party services. Lucas met in person or spoke by
telephone with prospective investors to pitch investments in the Funds. Lucas also solicited
existing investors to make additional investments and obtained referrals from existing investors.
27.
Defendants provided potential investors with offering materials, either by email or
through an online portal. These materials typically consisted of a limited partnership agreement
(“LPA”), private placement memorandum (“PPM”), a business presentation or slide deck
incorporated by reference into the PPM, and a subscription agreement. As co-founder and
Managing Partner of LBE, Lucas reviewed, edited, and approved the documents investors
received, and signed the LPAs for all three Funds. The PPMs and subscription agreements for all
three Funds refer to the limited partnership units as securities.
28.
FOV Holdings’ offering materials also referred to the membership interests it sold
via private placement as securities.
29.
LBE issued quarterly reports to investors in Funds 1 and 2. Lucas reviewed and
approved these quarterly reports, which included a letter from him about the Funds’
performance.
30.
For each Fund, investor money was deposited into a Fund bank account and
pooled with money from other investors in that Fund.
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31.
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Investors were limited partners of each Fund and, as such, had no role in
management or control of the Fund. LBE made investment decisions for the Funds. Investors
were entitled to a pro-rata share of profits or losses earned by the Funds.
32.
Lucas and LBE were entitled to compensation for their services in the form of an
annual management fee, along with a carried-interest provision that allowed them to share in the
upside of the Funds’ investments. Specifically, the LPAs for Funds 1 and 2 each stated:
[LBE] shall be entitled to receive compensation from the [Fund] for services
rendered to the [Fund] in an amount not to exceed one and a half percent (1.5%)
per annum (or portions thereof) of the aggregate Drawdowns from the Limited
Partners (the “Management Fee”) during the Investment Period and 1.5% of Net
Invested Capital of the [Fund] after the Investment Period until liquidation of the
[Fund].
33.
The PPMs for Funds 1 and 2 included nearly identical provisions. The fee
provisions for Funds 1 and 2 also provided that the Funds would pay all “organizational and
operational expenses of [the Fund] and [LBE] … if such expenses are greater than” the 1.5%
management fee. This excess amount would ultimately be subtracted from LBE’s share of Fund
profits in the event of a future distribution.
34.
For Fund 3, the language was changed slightly. First, the management fee paid to
LBE would be exactly—as opposed to no more than—1.5% per year. Second, unlike the LPAs
for Fund 1 and Fund 2, the LPA for Fund 3 did not include any provision that the Funds would
pay excess expenses of the general partner if the expenses exceeded the Management Fee. In
addition, a provision of the Fund 3 LPA allowed the investment manager (LBE) to collect 51%
of potential distributions that would otherwise be paid to the general partner (LBE GP, another
Lucas-run entity), and to take advances on that “Success Fee.” If any “Advance Success Fee”
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taken by LBE exceeded what it was ultimately due from the Fund as its share of the profits, LBE
would have to refund the excess at the time of dissolution and winding up of Fund 3.
35.
This structure ostensibly aligned Defendants’ financial interests with those of
investors. But behind the scenes, Lucas commingled funds and secretly misappropriated investor
money for himself, his family, and LBE.
B.
Defendants Were Investment Advisers
36.
The deal documents for the Funds designated Lucas or LBE with making
investment decisions on behalf of the Funds. Both Lucas and LBE, which was owned by Lucas
and his wife, received substantial compensation for their services.
37.
Accordingly, during the Relevant Period, Defendants acted as investment advisers
to the Funds within the meaning of Section 202(a)(11) of the Advisers Act, 15 U.S.C. § 80b2(a)(11), because they were persons who, for compensation, engaged in the business of advising
others, both directly and through publications or writings, as to the value of securities or as to the
advisability of investing in, purchasing, or selling securities.
38.
Investment advisers owe a fiduciary duty to their clients, which includes a duty of
care and a duty of loyalty. The duty of care requires the investment adviser to provide investment
advice in the best interest of its client, based on the client’s objectives. The duty of loyalty
requires an investment adviser to eliminate or make full and fair disclosure of all conflicts of
interest that might incline an investment adviser—consciously or unconsciously—to render
advice which is not disinterested such that a client can provide informed consent to the conflict.
II.
Defendants Engaged in a Years-Long Scheme to Steal Investor Money
39.
Defendants misappropriated millions of dollars from investors for Lucas’s
personal benefit and to make improper transfers between and among entities he controlled
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through a multi-year scheme involving Ponzi-like payments and other devices to conceal their
illicit use of investor money. Defendants also charged the Funds purported expenses well in
excess of the disclosed 1.5% management fee and concealed those charges from investors.
A.
Defendants Transferred Millions of Dollars of Investor Funds to Lucas’s
Personal Account
40.
Defendants’ primary method for misappropriating investor funds was to transfer
money from Fund bank accounts to an account for XL7, a pass-through entity owned by Lucas
and his wife that they used only to pay for personal and daily living expenses. According to
Lucas in his written submissions to the SEC, the XL7 account into which he transferred millions
of dollars of Fund money was “solely a personal bank account for a husband and wife” and a
“family bank account” used for the “payment of typical family bills.”
41.
From 2017 through 2022, Defendants transferred approximately $186,000 net
from Fund 1’s bank account to XL7’s bank account.
42.
From 2018 through 2023, Defendants transferred more than $4.1 million net from
Fund 2’s bank account to XL7’s bank account.
43.
During this period, Defendants made total transfers of approximately $6.4 million
from Fund 2 to XL7 but also made approximately $2.3 million in transfers back from XL7 to
Fund 2; this was consistent with their general practice of commingling funds between and among
various personal and business entities and accounts that Lucas controlled.
44.
Lucas directed the transfers through his accountant and frequently asked the
accountant to provide updated numbers on the amount of money he had transferred to XL7. For
example, in May 2022, Lucas texted his accountant, asking him to send him the “flows of funds
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between accounts – esp. from [Fund 2] to XL7.” Two days later, the accountant responded that
in Q1 2022 alone, $1,077,034 had been transferred from Fund 2 to XL7.
45.
From XL7’s bank account, Lucas used at least $4.1 million in investor money to
make hundreds of thousands of dollars of payments in the following categories: (i) rent for his
apartments in New York, NY, and Portsmouth, NH; (ii) alimony to his ex-wife; (iii) payments in
connection with residential properties in New Hampshire and Vermont for his personal
investment; (iv) payments to a political consultant; (v) financial support to a New Hampshire
newspaper Lucas had purchased; (vi) cash transfers to Lucas and his family members; and (vii)
Lucas’s daily living expenses, including restaurants, grocery, air travel, hotels, taxis, car rentals,
and shopping.
46.
Defendants’ ongoing diversion of investor money from Fund 2 to XL7 caused
LBE employees to suspect misconduct. For instance, in May 2020, Lucas requested that an LBE
employee recategorize certain transfers from Fund 2 to XL7 as LBE expenses rather than loans
to XL7. The employee texted a co-worker with concerns about the request. The co-worker
responded that “90–95% of the XL7 amount is from [Lucas] transferring cash out of LBE not
expenses,” to which the first employee responded, “[Lucas’s] argument . . . is that the money he
transferred to XL7 was used for LBE expenses, which obviously makes no sense.”
47.
Having reviewed, edited, and approved the offering documents investors received,
including all three Funds’ LPAs, PPMs, and the business presentations and slide decks
incorporated by reference into the PPMs, having signed the LPAs for all three Funds, and in his
capacity as the Managing Partner of LBE with control over the financial accounts of LBE and all
three Funds, and further in light of his communications with his accountant as described above in
paragraph 44, Lucas, and by imputation LBE, knew, were reckless in not knowing, or at a
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minimum, should have known, that the millions of dollars Defendants transferred from Fund
accounts to XL7’s account were in excess of the management fees and expenses set forth in the
PPMs and LPAs, and therefore were in contravention of those documents.
B.
Defendants Tapped Fund Bank Accounts to Pay Personal Expenses
48.
Lucas also misappropriated investor money by charging personal expenses
directly to Fund bank accounts. For instance, from 2018 to 2024, Lucas charged at least
$975,000 directly to Fund 2’s bank account for personal expenses, including at least $90,000 in
payments to support the newspaper Lucas owned and tens of thousands of dollars in airfare,
hotels, and other travel expenses recorded as personal in Fund 2’s internal records.
49.
Lucas also misappropriated at least $727,000 of Fund 2 investor money to support
the Lucas Group, an unrelated consulting business he owned that did no work for Fund 2. He
transferred Fund 2 investor money directly to the consulting business and used Fund 2’s bank
account to pay the consulting business’s employees and other expenses directly.
50.
By the time Fund 3 began raising money in June 2024, the XL7 bank accounts
had been closed, but Lucas continued to misappropriate investor money by taking money directly
from Fund 3. Only 16% of the approximately $4 million raised for Fund 3 was transferred to
portfolio companies. Defendants transferred more than $860,000 of Fund 3 investor money to
LBE and spent an additional $573,000 on LBE payroll and related expenses directly from Fund
3’s bank account.
51.
Thus, over the course of 18 months, Defendants raised $4 million from Fund 3
investors, transferred only approximately $614,000 of that to portfolio companies, and sent
approximately $1.43 million to Defendant LBE, even though LBE’s 1.5% management fee
would have totaled less than $90,000. Lucas misappropriated much of the remaining
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approximately $2 million, including more than $247,000 for unrelated investments in New York
and New Hampshire, $19,000 for alimony payments, $19,223 transferred to Fund 2’s bank
account, $79,273 for rent, more than $20,000 in direct payments to family members, and $88,000
to the Lucas Group.
52.
Having reviewed, edited, and approved the offering documents investors received,
including all three Funds’ LPAs, PPMs, and business presentations and slide decks incorporated
by reference into the PPMs, having signed the LPAs for all three Funds, and in his capacity as
the Managing Partner of LBE with control over the financial accounts of LBE and the accounts
of all three Funds, Lucas, and by imputation LBE, knew, were reckless in not knowing, or at a
minimum, should have known, that the millions of dollars Defendants transferred directly out of
Fund accounts to pay for personal and other non-Fund expenses were in excess of the
management fees and expenses set forth in the PPMs and LPAs, and therefore were in
contravention of those documents.
C.
Lucas Often Immediately Used Incoming Investor Money to Pay Personal
Bills Instead of Fund-Related Expenses and Investment
53.
Lucas often immediately misappropriated new investor money for uses unrelated
to the Funds. He treated incoming investor money as personal income he could use to support his
lifestyle, instead of using the money for Fund-related investment.
54.
Lucas also repeatedly engaged in a shell game—if one entity he controlled had
cash in a bank account and another entity had expenses or obligations that needed to be met, he
would move the money to the account of the entity most in need. Defendants thus used investor
money that had been contributed to the Funds for improper purposes. For example:
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55.
January 2018
On January 5, 2018, XL7’s account had a beginning balance of about $1,190.
Lucas then transferred $15,000 from Fund 1’s account to XL7’s account that day. Later that
same day, Lucas transferred $4,000 to a family member and $2,650 to a book publisher from
XL7’s account.
2.
56.
May 2018
On May 3, 2018, Fund 2 received a $375,000 investment from a husband and
wife who had not previously invested with Lucas. This cash infusion lifted Fund’s 2 bank
account balance from about $23,000 to about $398,000. Fund 2 did not receive money from any
other source between May 3, 2018, and May 14, 2018.
57.
On May 4, 2018, Lucas transferred $123,000 from Fund 2’s account to XL7’s
account, boosting XL7’s account balance from about $24,000 to about $147,000. Later that day,
Lucas directed payments totaling $118,448 from XL7’s account to three vendors engaged to
provide services for Lucas’s upcoming designer wedding to the CEO of Immunocologie. These
payments included $35,000 to a wedding planner, $62,647 to a catering firm hired for the
rehearsal dinner and wedding reception, and $20,801 to a third vendor for catering equipment,
furniture, tableware, a stage, and lighting. Also on May 4, Lucas directed a $6,700 payment from
XL7’s account to a New Hampshire political consultant. Lucas transferred $3,000 from XL7’s
account to a Lucas family member the same day.
58.
On May 12, 2018, the husband and wife who had invested in Fund 2 nine days
earlier attended Lucas’s wedding and reception. They were unaware that at least $123,000 of
their investment had been diverted to pay many of the vendors for the events they were
attending.
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3.
59.
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October 2022
On October 19, 2022, Lucas deposited into Fund 2’s bank account a $675,000
check from an investor, who texted Lucas at the time that he was “excited to triple down” on his
investment. At the time, Fund 2’s bank account had a negative balance of $3,880. From October
24, 2022, to November 2, 2022, across 10 transactions, Defendants transferred $360,000 from
Fund 2’s account to XL7’s account. Prior to the transactions, XL7’s account had a balance of
$528, and during this period it did not receive money from any other source.
60.
Lucas used the $360,000 in investor money he had transferred to XL7 for his
personal benefit. He spent $3,500 on rent for his and his wife’s apartment in Portsmouth, NH,
made an alimony payment of $3,110 to his ex-wife, spent $1,282 on shopping, spent $2,381 on
restaurants and grocery stores, spent $1,019 on airfare, made $3,845 in political donations, and
transferred $16,100 to his personal bank account and $6,000 to his wife’s bank account. On
October 24, 2022, he made a payment of $34,137 to a New Hampshire political consultant. On
November 2, 2022, he transferred $200,000 to facilitate a transaction for FOV Holdings.
61.
At the time of these transactions, LBE was behind on both payroll for its
employees and other important services, including paying for the online portal LBE used to
communicate with investors. Yet LBE employees, based on prior experience, were rightfully
concerned that Lucas would not use the new investor funds for these LBE-related expenses.
62.
On October 14, 2022, one employee texted another that “Jay will blow through
that check from [the investor] since he has a ton of other person[al] BS that needs to get paid.”
63.
Later, another employee described Defendants’ use of investor money on non-
LBE-related business as “a huge betrayal of investor trust and most likely illegal.”
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64.
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Another employee commented that, as was often the case, Lucas avoided her
when she tried to raise the issue.
4.
65.
May 2023
On May 16, 2023, an existing LBE investor wired $500,000 to Fund 2’s bank
account, which at the time had a balance of $2,490.
66.
Yet over the next two weeks, Defendants transferred $133,000 of the investor’s
money to XL7’s account, which had a balance of $1,878 before the transfers. Lucas then used
the money to pay for, among other things, rent at his Manhattan apartment ($10,400), a political
consulting firm ($24,200), his newspaper ($24,000), utility bills ($3,523), restaurants ($3,277),
and two transfers to banks in the Netherlands ($17,900).
5.
67.
January 2024
On January 30, 2024, two investors wired a total of $400,000 into Fund 2’s bank
account, which at the time had a negative balance of $3,344. That day, Lucas texted one of his
assistants: “Checked account. $300,000 came in! We’ve had a $400,000 day!!!
ps.
Transferred $5k to [FOV Holdings]. Should be able to cover [the political consultant]!”
68.
Over the next few days, Lucas transferred the investors’ money directly out of
Fund 2’s bank account for non-Fund purposes, including $10,000 to the political consultant,
$40,800 to FOV Holdings’ account, and $24,000 to entities on behalf of the newspaper he
owned. Less than 50% of the investors’ money was sent to portfolio companies (which included
approximately $53,500 to Immunocologie).
6.
69.
August 2025
On August 4, 2025, an investor wired $50,000 to Fund 3’s bank account, which at
the time had a negative balance of $379. On August 7, 2025, a second investor wired another
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$50,000 to Fund 3’s account. That same day, Lucas wired $79,000 from Fund 3’s account to the
account of a separate entity he controlled, Sunshine Fund LLC, and then used that money to
make a rent payment of more than $78,000 for his apartment in New York.
70.
Having reviewed, edited, and approved the offering documents investors received,
including all three Funds’ LPAs, PPMs, and business presentations and slide decks incorporated
by reference into the PPMs, having signed the LPAs for all three Funds, and in his capacity as
the Managing Partner of LBE with control over the financial accounts of LBE and all three
Funds, Lucas, and by imputation LBE, knew, were reckless in not knowing, or at a minimum,
should have known, that immediately using incoming investor money to pay for personal and
other non-Fund expenses in amounts that exceeded the management fees and expenses set forth
in the PPMs and LPAs was in contravention of those documents.
D.
Defendants Made Ponzi-Like Payments to Previous Investors
71.
In March 2018 a Fund 1 investor demanded that Lucas return his $200,000
investment because his confidence in Lucas and his investments had been “completely shaken
up” when he learned that Lucas had defaulted on a business loan. On July 26, 2018, a different
investor deposited $200,000 into Fund 1’s account. Prior to this deposit, the account had a
balance of $8,676.
72.
Between July and September 4, 2018, Fund 1’s account received only one
additional deposit for less than $30,000. Nevertheless, on September 4, 2018, Lucas transferred
$200,000 from Fund 1’s account to the investor who had demanded a return of his investment in
March. Defendants thus misappropriated over $160,000 to provide the refund.
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73.
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Defendants also misappropriated at least $1,394,500 of Fund 2 money to repay
investors in LGC, a fund previously established and advised by Lucas. In early 2018, LGC
received hundreds of thousands of dollars in distributions from its investments.
74.
Rather than passing that money to LGC investors, between February 2018 and
July 2018, Lucas transferred at least $867,000 from LGC’s account to XL7’s account, and used it
for a variety of purposes unrelated to LGC, including to pay expenses for his wedding.
75.
Defendants later misappropriated Fund 2 investor money to repay the money
Lucas had taken from LGC. On October 10, 2018, for example, Lucas transferred $300,000 from
Fund 2’s account to Immunocologie’s account, from Immunocologie’s account to XL7’s
account, and from XL7’s account to LGC’s account.
76.
An LBE employee asked Lucas’s accountant about the transaction in a text
message, writing, “did that 300k to Immunocologie go to payroll taxes? Jay gave me some
muddled answer.” The accountant responded, “Not that [I’m] aware of. It went…..[Fund 2] to
imm to xl7 to [LGC].” The LBE employee responded, “Auditors would love that one :).”
77.
Between October 2018 and January 2022, Lucas transferred approximately $1.4
million of Fund 2 investor money to LGC through Ponzi-like payments involving transfers
among multiple accounts on a single date, as set forth below:
Date
10/10/2018
Amount
$300,000
12/24/2018
$580,000
12/28/2018
$38,000
11/5/2019
1/7/2022
$152,000
$324,500
Total
$1,394,500
Description
$300,000 transferred from Fund 2 to Immunocologie to
XL7 to LGC
$600,000 transferred from Fund 2 to Immunocologie to
XL7; $580,000 transferred from XL7 to LGC
$40,000 transferred from Fund 2 to XL7; $38,000
transferred from XL7 to LGC
$152,000 transferred from Fund 2 to XL7 to LGC
$325,000 transferred from Fund 2 to XL7; $324,500
transferred from XL7 to LGC
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78.
Document 1
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By funneling the first two above 2018 transactions through Immunocologie,
Defendants disguised their misappropriation by falsely recording the transfers as Fund
“investments” in a portfolio company.
79.
Having reviewed, edited, and approved the offering documents investors received,
including all three Funds’ LPAs, PPMs, and business presentations and slide decks incorporated
by reference into the PPMs, having signed the LPAs for all three Funds, and in his capacity as
the Managing Partner of LBE with control over the financial accounts of LBE and the accounts
of all three Funds, Lucas, and by imputation LBE, knew, were reckless in not knowing, or at a
minimum, should have known, that they were using incoming investor money to make Ponzilike payments in contravention of the Fund PPMs and LPAs.
E.
Defendants Concealed Their Misappropriation and the Excess Expenses
They Purportedly Charged Funds 1 and 2
80.
Through misrepresentations and omissions in quarterly reports, Defendants
furthered their scheme by concealing their misappropriation of investor money and the purported
excess expenses LBE charged Fund 1 and Fund 2.1
81.
During the Relevant Period, Defendants prepared and provided investors in Fund
1 with quarterly reports for most quarters from at least the second quarter of 2017 through the
third quarter of 2024, although many of these reports were delivered months late.
1
Fund 3’s LPA required Defendants to provide Fund 3 investors with quarterly reports, but the
Commission has seen no evidence that they ever did so.
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82.
Document 1
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Defendants prepared and provided investors in Fund 2 with quarterly reports for
most quarters from at least the fourth quarter of 2018 through the third quarter of 2024, although
again many were delivered months late.
83.
The quarterly reports typically started with a letter to investors from Lucas, and
included an unaudited schedule of investments that listed the portfolio companies that had
received Fund money, the type of investment, the cost of the investment, the “Fair Value” of the
investment (typically equal to the cost of the investment), and the ownership interest held by the
Fund in the portfolio company.
84.
The quarterly reports also contained updates on individual portfolio companies in
the form of narratives and financial information, as well as unaudited financial statements for the
Fund itself, which included a balance sheet, an income statement, a cash flow statement, and a
statement of capital.
1.
85.
Defendants Grossly Understated Purported Expenses
The income statements (titled “Unaudited Statement of Operations”) in quarterly
reports for Fund 1 and Fund 2 included a section for “Expenses,” which typically comprised a
single item: “Management fee, net” as seen in the sample below from Fund 2’s Q1 2023 report:
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86.
Document 1
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The quarterly reports did not disclose additional purported expenses that
Defendants charged the Funds. These purported expenses were tracked in LBE’s internal
accounting records and were far in excess of the 1.5% management fee disclosed in the quarterly
reports and described in the LPAs and PPMs.
87.
From 2018 through 2024, Defendants disclosed, in quarterly reports provided to
Fund 2 investors, “Expenses” totaling approximately $1.5 million (roughly equal to the 1.5%
annual management fee), when, in fact, Defendants charged Fund 2 an additional $4.1 million in
purported expenses during this period.
88.
Defendants knew that the “Expenses” disclosed to investors in quarterly reports
significantly understated the expenses they were charging Fund 2 and led investors to believe
that the only expense Defendants charged the Fund, with the exception of an occasional small
“Professional fee,” was the 1.5% annual management fee.
89.
Defendants continued to use marketing materials disclosing only the 1.5%
management fee and stating that all proceeds of investments would be returned to investors
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“until 1.0x return of their invested capital plus fees, if any, in excess of the management fee”
from 2019 to 2024 when soliciting new investor funds for Fund 2.
2.
90.
Defendants Used an Account Called “Due from Affiliates” to Conceal
Their Misappropriations
To account for the large difference between money received from investors and
money spent on legitimate Fund operations, Defendants used an account called “Due from
Affiliates.” Defendants listed the total of “Due from Affiliates” as an asset on the balance sheet
of each quarterly report provided to investors, without further explanation or detail, as seen in the
sample below from Fund 2’s Q1 2023 report:
91.
Internally at LBE, the “Due from Affiliates” account included various sub-
accounts reflecting the purpose for which investor money had been used. For example, money
that had been misappropriated for Lucas’s personal use—either through direct transfers to XL7’s
account or through personal expenses charged directly to Fund 2’s bank account—was included
in a sub-account titled “Due to/from XL7 Group LLC.” Investor money which was used to pay
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for purported Fund expenses that exceeded the 1.5% management fee was tracked in a subaccount titled “Due to/from Lucas Brand Equity LLC.”
92.
“Due from Affiliates” began modestly for Fund 1 and Fund 2 but grew
substantially over time. For example, the “Due from Affiliates” amount for Fund 2 was
$1,495,627 according to the Q4 2018 quarterly report, but by Q3 2024, it had ballooned to
$9,269,377, representing approximately 35% of the Fund’s total reported assets. By this time,
Fund 2’s “Due from Affiliates” figure included more than $5.1 million that Lucas had
misappropriated from Fund 2 investors for his personal use ($4.1 million through transfers to
XL7 as detailed in Section II.A. above; $975,000 through direct payments from Fund 2’s bank
account as detailed in Section II.B. above) as well as a separate $4.1 million he and LBE had
obtained in excess fees and expenses charged to Fund 2 (as detailed in Section II.E.1 above).
93.
When investors questioned Lucas about the “Due from Affiliates” line item on the
Funds’ balance sheets, Lucas’s responses were deliberately misleading. He told them that the
amount reflected additional fees and expenses associated with running the Funds and was akin to
a receivable that Defendants would pay back to the Funds prior to receiving any distributions
themselves.
94.
For example, in response to one investor inquiry in September 2023 about Fund 2,
Lucas stated that 95% of the “Due from Affiliates” balance was simply “management fees in
excess of the 1.5% management fee” which represented “the accumulated expense of office rent,
professional compensation, outside services, etc. to run the fund since its inception in November
2017.”
95.
The sheer volume of these purported excess Fund expenses defied credulity,
however. In December 2023, in response to Lucas’s explanation that the $10.4 million difference
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(as of Q1 2023) between total investor money contributed to Fund 2 and money actually invested
in portfolio companies was a result of “fund expenses” that exceeded the management fee,
another investor commented, “[T]hat can’t be true given the amount.” When that same investor
also requested an explanation of the $7.39 million “Due from Affiliates” figure in the same
Fund 2 Q1 2023 report, Lucas doubled down on his explanation and misleadingly described the
amount as expenses related to the Fund, specifically “costs of executing investment and portfolio
management activities and fund management.”
96.
Lucas did not disclose to either investor that approximately $5.1 million of
Fund 2’s “Due from Affiliates” total reflected investor money he had misappropriated for his
personal use.
97.
Defendants’ portrayal of “Due from Affiliates” as a Fund asset was deliberately
misleading. The money was largely misappropriated and misused by Lucas, and he had no way
to repay the Funds absent a wildly successful liquidation event. Such an event was less likely
because Defendants misused the money instead of investing it in the portfolio companies.
98.
Defendants also hid purported Fund expenses in a line item called “Investments in
assets,” which they included in the balance sheets of the quarterly reports. The number remained
small (approximately $65,000) for Fund 1 but grew substantially for Fund 2. As seen in the
graphic above, by Q1 2023, Fund 2’s “Investment in assets” had a value of $1,609,640.
99.
In a December 2023 email to an investor, Lucas described the “Investment in
assets” line item as representing “activities – wherein we have invested time, effort and cost in
specific potential deals that have not materialized.” Similar to “Due from Affiliates,” the line
item “Investments in assets” therefore was not actually an asset; it comprised additional expenses
not clearly or accurately disclosed to investors.
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100.
Document 1
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Having reviewed, edited, and approved the offering documents investors received,
including all three Funds’ LPAs, PPMs, and business presentations and slide decks incorporated
by reference into the PPMs, having signed the LPAs for all three Funds, having reviewed and
approved the quarterly reports LBE sent to Fund 1 and Fund 2 investors, which included a letter
from Lucas about the Funds’ performance, and in his capacity as the Managing Partner of LBE
with control over the financial accounts of LBE and the accounts of all three Funds, and further
in light of his misleading communications with investors, as described above in paragraphs 93 to
96 and 99, Lucas, and by imputation LBE, knew, were reckless in not knowing, or at a
minimum, should have known, that they were concealing from investors Defendants’
misappropriation and the excess fees Defendants charged the Funds in contravention of the Fund
PPMs and LPAs.
III.
Defendants Made Additional Material Misrepresentations and Omissions in
Furtherance of Their Scheme
A.
Materially False and Misleading Statements About the Use of Investor Funds
101.
In all three Funds’ PPMs, Defendants stated that investor money “will be used to
effect acquisitions and licenses, to fund the development of products and for working capital for
the Partnership’s portfolio companies.” The PPMs for Funds 1 and 2 further stated that they
would invest in small skincare, beauty, and/or personal products companies in the “subscale” to
“emerging growth” stage.
102.
The Fund 3 PPM stated that LBE was evaluating a specific wellness product
company for investment and that if an agreement was finalized, half of the investor money
received prior to that investment would be used for that purpose, with the balance used for
“diversification, analyzing and investing in additional Partnership portfolio companies.”
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103.
Document 1
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Lucas repeated similar statements about the use of investor funds in direct
conversations with potential investors, and investors considered these statements significant in
deciding to invest. One Fund 2 investor stated after the fact that he would not have agreed to
invest if he had known that his money would be used for anything unrelated to the Fund.
Defendants’ statements were knowingly misleading when made because Defendants knew that
they were misappropriating substantial sums of investor money.
104.
Defendants also lied to investors regarding their use of investor money when they
issued capital calls. Capital call emails typically told investors that funds were needed because
“several of our more advanced brands are approaching key inflection points.”
105.
In October 2023, for example, Lucas emailed one Fund 2 investor asking him to
send $25,000 as part of the investor’s $100,000 total investment. Lucas’s email used the “key
inflection point” language, adding that “we are continuing to invest in new opportunities in the
beauty and wellness space.” In a follow-up email, Lucas explained that “the reason for the
capital call is that we are making follow on investment[s] into several of our portfolio
companies.”
106.
In fact, the balance in Fund 2’s bank account was negative $4,637 when the
investor wired $25,000 on October 12, 2023. The next day, at Lucas’s direction, $17,000 of the
$25,000 was wired to the New Hampshire newspaper Lucas owned. The remaining funds were
used over the next few days to renew certain software licenses for LBE and for other de minimis
expenses.
107.
By misrepresenting their intended uses for investor funds, Lucas, and by
imputation LBE, knowingly, recklessly, or at a minimum, negligently, made untrue statements of
material fact or omitted to state material facts necessary to make the statements made, in light of
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the circumstances under which they were made, not misleading, to investors and prospective
investors in the Funds.
B.
Lies About Outside Service Providers
108.
According to the LPA for Fund 1, LBE was required to deliver to all investors
“the annual financial statements of the [Fund], audited by independent certified public
accountant(s) . . . within sixty (60) days of the delivery of the final Auditor’s Report to the
General Partner.”
109.
Defendants never retained an independent auditor and never provided investors
with audited financial statements. Had Defendants retained outside auditors, their significant
misappropriation and misuse of investor funds likely would have been detected.
110.
Defendants did not promise to give audited financial statements to Fund 2 or Fund
3 investors. Instead, Defendants told investors in Fund 2 that they would implement “cost
effective, efficient and transparent fund operations,” by retaining SteelBridge, a third-party
administrator Defendants said would provide “best-in-class options for administration, reporting
and compliance.”
111.
This representation was made in, among other places, an investor presentation
Lucas sent to prospective Fund 2 investors in 2023 and 2024. At least one investor believed that
the retention of a third-party fund administrator added credibility to a Fund.
112.
As Lucas well knew, Defendants had not employed SteelBridge for years when he
sent the 2023 and 2024 investor presentations. In fact, SteelBridge emailed Lucas in December
2018 to resign due to Lucas’s failure to pay SteelBridge’s outstanding invoices.
113.
By misrepresenting their retention of third-party service providers, Lucas, and by
imputation LBE, knowingly, recklessly, or at a minimum, negligently, made untrue statements of
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material fact or omitted to state material facts necessary to make the statements made, in light of
the circumstances under which they were made, not misleading, to investors and prospective
investors in the Funds.
C.
Misrepresentations and Omissions Concerning Immunocologie
114.
Defendants misled investors about key aspects of the Funds’ purported
“investments” in Immunocologie, ostensibly the largest investment in a portfolio company made
by each of the three Funds.
1.
115.
Defendants Misstated the Nature of Fund Investments in
Immunocologie
In 2013, LBE arranged a transaction with the founders of a small skincare
company pursuant to which a newly formed company, which ultimately became Immunocologie,
would purchase the assets of the skincare company, and ownership of that new company was
divided among LBE and the two founders. LBE was granted a 51% ownership stake in the new
company and each of the founders retained a 24.5% ownership stake. Lucas’s then girlfriend
(now his wife) became Immunocologie’s CEO in August 2013.
116.
From about 2013 through 2018, Defendants directed more than $5.3 million of
Fund 1 investor money to Immunocologie. From 2018 to 2024, Defendants directed more than
$6.9 million of Fund 2 investor money to Immunocologie. These transfers made Immunocologie
the largest investment for those Funds, ultimately reaching approximately 40% of Fund 1’s total
invested capital, and approximately 43% of Fund 2’s total invested capital. In addition, Fund 3
transferred at least $310,000 of the $4 million it raised to Immunocologie, which represented
approximately 50% of the investor money Fund 3 sent to portfolio companies.
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117.
Document 1
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In reality, and contrary to representations to investors, Fund 1 and Fund 2 did not
have an equity interest in Immunocologie. Instead, in March 2019, in his capacity as Chairman
of Immunocologie, Lucas executed two promissory notes in favor of Fund 1 and Fund 2,
purporting to document multi-million dollar “loans” that Immunocologie received from Fund 1
and Fund 2. The notes make it clear that the previous transfers of money (along with any future
transfers) from Fund 1 and Fund 2 to Immunocologie were being subsumed by the notes, leaving
the Funds as creditors to Immunocologie, not owners.
118.
Nevertheless, beginning at least in 2017, Defendants represented to investors that
Fund 1, and later Fund 2, had significant ownership interests in Immunocologie, and would thus
share in any potential upside. The quarterly reports Lucas and LBE provided to investors
included Immunocologie in the “Schedule of Investments,” which listed the amount of money
that each Fund had provided to Immunocologie and the percentage of Immunocologie
purportedly owned by each Fund under “Ownership Interest.”
119.
For example, in the Fund 1 quarterly report for Q1 2023, Fund 1’s investment in
Immunocologie was listed at $5.346 million, which it described as a 46.3% “Ownership Interest”
in the company. For the same quarter, Fund 2’s investment in Immunocologie was listed at
$6.681 million and described as a 55.6% “Ownership Interest.” See the excerpts of Fund 1 and
Fund 2’s quarterly reports for Q1 2023 below:
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Fund 1 Q1 2023 Quarterly Report Excerpt
Fund 2 Q1 2023 Quarterly Report Excerpt
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120.
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Defendants knew that Funds 1 and 2 did not have an ownership interest in
Immunocologie. In addition to signing the promissory notes on behalf of Immunocologie, when
Lucas asked an LBE employee in January 2021 to “refresh me on the corporate structure and
financial status” of Immunocologie with respect to Funds 1 and 2, the employee replied that “the
entire investment from both funds are through promissory notes.”
121.
In February 2025, another LBE employee sent Lucas drafts of the Q3 2024
quarterly reports for Fund 1 and Fund 2 that changed the description of the Funds’ interest in
Immunocologie from “Membership Interest” to “Promissory Note.” Lucas responded by asking
the employee to change the security description “back from ‘Promissory Note’ to ‘Membership
Interest.’”
2.
122.
Defendants Misstated the Amount of Fund Investments in
Immunocologie
The quarterly reports also falsely stated how much money Fund 1 and Fund 2 had
“invested” in Immunocologie. As described above at the end of Section II.D, at least two large
2018 transfers from Fund 2 to Immunocologie were not actual investments in the company by
Fund 2, but instead were part of a series of transactions that used Fund 2 investor money to make
Ponzi-like payments to LGC investors, with Immunocologie as a pass-through. Nonetheless, the
quarterly reports included these pass-through amounts in the total amount of “investment” in
Immunocologie by Fund 2, overstating Fund 2’s “investment” in Immunocologie by at least
$880,000.
123.
Similarly, in December 2014, Defendants funneled $331,250 from Fund 1’s
account through Immunocologie’s account and XL7’s account, then back to Fund 1’s account
where it originated:
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Date
12/30/2014
Amount
$270,000
12/31/2014
$61,250
Total
$331,250
124.
Document 1
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Description
$270,000 transferred from Fund 1 to Immunocologie to
XL7 to Fund 1
$61,250 transferred from Fund 1 to Immunocologie to XL7
to Fund 1
These circular transactions resulted in a $331,250 overstatement of Fund 1’s
purported investment in Immunocologie.
125.
Defendants reported these misleading numbers in the quarterly reports throughout
the Relevant Period.
3.
126.
Defendants Failed to Disclose Conflicts of Interest Concerning
Immunocologie
Quarterly reports and Fund offering documents did not disclose that LBE was the
majority owner of Immunocologie, that Lucas’s wife was the CEO of Immunocologie, and that
Lucas himself was the company’s Chairman.
127.
Nor was that information revealed during online presentations made by portfolio
companies—including Immunocologie—that Defendants organized for Fund investors.
128.
At least one investor stated after the fact that he would have considered it
essential to know that the CEO was Lucas’s wife before deciding to invest because that meant
that the Fund’s large investment in Immunocologie posed a serious conflict of interest.
129.
By misrepresenting the nature of Fund investments in Immunocologie, by
misstating the amount of Fund investments in Immunocologie, and by failing to disclose
conflicts of interest concerning Immunocologie, Lucas, and by imputation LBE, knowingly,
recklessly, or at a minimum, negligently, made untrue statements of material fact or omitted to
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state material facts necessary to make the statements made, in light of the circumstances under
which they were made, not misleading, to investors and prospective investors in the Funds.
IV.
Defendants Unreasonably Failed to Reassess the Fair Value of Multiple Portfolio
Companies
130.
Throughout the Relevant Period, Defendants assigned a valuation to each of
Fund 1’s and Fund 2’s investments in portfolio companies. Defendants included these valuations
under the column heading “Fair Value” in the “Schedule of Investments” that was included in
the quarterly reports provided to investors.2 Generally, Defendants assigned a “Fair Value” for
each investment that was equivalent to the amount of money the Fund had invested in each
portfolio company. In certain instances, Defendants assigned higher valuations via an “in-place
multiple” that was applied to the cost of each investment. For other investments that were
unsuccessful, Defendants zeroed out the “Fair Value” of the Fund’s investment.
131.
The valuations of the Funds’ investments also factored into the management fees
Defendants were paid for managing the Funds. The fee provision of the LPAs for Funds 1 and 2
provided that, after an initial five year “Investment Period,” LBE’s management fee was to be
based on the “Net Invested Capital” of each Fund, an amount that should have been decreased if
a particular investment had been “written down” and “perceived to have a permanent impairment
of value as determined by the General Partner.” Accordingly, a decrease in the value assigned to
an investment in a portfolio company would decrease the management fees due to Defendants.
132.
Defendants had a fiduciary duty to Fund 1 and Fund 2 and their respective
investors to reassess these valuations as appropriate. With respect to Fund investments in at least
2
Examples of the “Schedule of Investments” that list each portfolio company’s “Fair Value” are
shown in the excerpts of quarterly reports included in Section III.C.1., above.
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three portfolio companies, Defendants unreasonably failed to do so, despite requests from
investors and Defendants’ awareness of substantial information suggesting a reassessment was
warranted.
A.
Immunocologie
133.
By Q3 2024, the “cost” of the Funds’ investments in Immunocologie had
reportedly grown to $6,941,850 for Fund 2 and $5,346,318 for Fund 1. The Q3 2024 quarterly
report for Fund 2 stated that its $6,941,850 investment constituted a 56.5% “Ownership Interest”
in Immunocologie, implying an overall value for the company of $12,286,460. This purported
total value was equal to almost exactly the total amount of money Fund 1 and Fund 2 had
transferred to the Immunocologie to date ($6,941,850 + $5,346,318 = $12,288,168).
134.
Between 2018 and 2023, Immunocologie averaged annual gross sales of
$389,495. In 2018, gross sales were approximately $588,498. By 2023, gross sales had fallen to
$197,960. In addition, from 2018 through 2023, the company averaged losses of more than a
million dollars a year.
135.
Defendants, aware of Immunocologie’s dismal performance, continued to value
the company at “cost” in the Funds’ quarterly reports. They did so despite requests from at least
two investors in November 2023 that Lucas consider writing down the values of Immunocologie
and two other portfolio companies (Marula Oil and Standard Dose, discussed below) given the
downturn in their sales performance.
136.
In these circumstances, Defendants’ failure to reassess the value of Fund 1’s and
Fund 2’s investments in Immunocologie was unreasonable.
137.
Separately, Defendants knew that they had inflated the Fair Value assigned to
Immunocologie in quarterly reports when, as described above in Section III.C.2, they overstated
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the “cost” of their investment in the company, which in turn inflated the reported Fair Value of
the company.
138.
This inflation by Defendants resulted in them charging excessive management
fees to Fund 1 and Fund 2 since management fee calculations were affected by the Fair Value
amounts, as detailed above at the beginning of Section IV.
B.
Marula Oil
139.
Marula Oil (“Marula”) was a hair and skincare company that sold products
featuring oil derived from the African Marula tree nut. It was the second largest recipient of
Fund 1 and Fund 2 money, after Immunocologie. As of Q1 2024, Defendants reported that Fund
1 had invested $3.35 million in Marula (acquiring a 44% ownership stake in the company), and
that Fund 2 had invested $2.49 million (acquiring a 32% ownership stake). In quarterly reports
for both Funds, Defendants consistently assigned a “Fair Value” to each Fund’s investment in
Marula equal to the cost of each Fund’s investment, implying that Marula had a total overall
value of nearly $8 million.
140.
But as Defendants were aware, by 2022 Marula had effectively ceased operations.
It had no sales, no products, and no assets, and the company LBE previously had hired to
overhaul Marula had quit because it was not getting paid.
141.
Nevertheless, Defendants did not reassess the valuation of Fund 1’s and Fund 2’s
investments in Marula. Their failure to do so was unreasonable.
C.
Standard Dose
142.
Standard Dose was a “a premium lifestyle brand setting and elevating the standard
of plant-based wellness and alternatives to traditional pharmaceutical based remedies.” Standard
Dose received $1.9 million of Fund 2 money during the period 2018 to 2024 mainly in the form
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of equity plus a $150,000 convertible bridge note. In quarterly reports Defendants typically
valued Fund 2’s investment in Standard Dose at approximately five times the amount Fund 2 had
invested in the company.
143.
Standard Dose collapsed in late 2023. Around that time, LBE employees
conducted an investigation of Standard Dose and concluded that $6.3 million had been stolen
from the company, which led to extensive misrepresentations by Standard Dose in its financials
and “compromised the integrity and financial stability” of the company.
144.
On November 2, 2023, Lucas emailed LBE employees and told them that he had
been getting multiple calls from investors about Standard Dose. He proposed drafting a letter to
send to investors “ASAP” that would describe the analysis done by LBE and the “massive fraud
we discovered.” Later that day, an LBE employee sent a draft 5-page letter to Lucas that laid out
the findings of their investigation in great detail. That letter was not sent to investors.
145.
Instead, in late December 2023, Lucas distributed an “Investor Update Letter”
summarizing activity at a number of portfolio companies, including Standard Dose. After several
positive bullet points highlighting Standard Dose’s progress, Lucas acknowledged only that “we
have recently uncovered evidence of fraud by the founder and previous CEO, who is no longer
working at Standard Dose.”
146.
LBE continued to value Standard Dose in quarterly reports at about four times the
amount it invested in the company.
147.
When Lucas finalized the Q2 2023 quarterly report for Fund 2 in January 2024,
he did not mention the Standard Dose investigation and did not decrease the assigned value of
the Fund’s investment in the company. Shortly thereafter, the report was distributed to investors
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via the online portal and email, prompting at least one investor to complain about LBE’s failure
to write down the value of Standard Dose.
148.
The Q3 2023 quarterly report for Fund 2, distributed to investors in February
2024, referenced LBE’s discovery of fraud at Standard Dose but Defendants still did not reassess
their valuation of the company.
149.
It was not until the Q4 2023 quarterly report, provided to investors in May 2024,
that Defendants reduced the valuation of their interest in Standard Dose, electing to assign a
value equal to the money Fund 2 had invested instead of the five-times multiple they previously
used.
150.
Defendants’ failure to reassess the valuation of Fund 2’s investment in Standard
Dose in the quarterly reports they sent to investors until May 2024 was unreasonable.
151.
By unreasonably failing to reassess the valuation of Fund portfolio companies
Immunocologie, Marula Oil, and Standard Dose, despite Defendants’ awareness of substantial
information suggesting that reassessment was warranted, Lucas, and by imputation LBE,
knowingly, recklessly, or at a minimum, negligently, violated their fiduciary duty to the Funds.
V.
Defendant Lucas Used a Separate Investment Vehicle to Steal Additional Investor
Money
152.
Through additional entities he controlled, Lucas offered and sold securities in
another investment vehicle, Lucas FOV Holdings, LLC (“FOV Holdings”). The purpose of FOV
Holdings was to purchase a substantial stake in Flags of Valor, LLC (“Flags of Valor”), a
company that produces flags and other patriotic decorations. Lucas was the Managing Member
of Lucas FOV Manager, LLC (“FOV Manager”), which served as the manager of FOV
Holdings.
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153.
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FOV Holdings raised more than $2.5 million in 2022 and 2023 from
approximately 20 investors, but at most only approximately $1.4 million was sent to Flags of
Valor. Lucas used more than $1 million of the money he raised for personal and unrelated
business expenses.
154.
In offering materials for FOV Holdings, including a slide deck for potential
investors, Lucas stated that investor money would be used to buy a 45% interest in Flags of
Valor and provide working capital to that company. Pursuant to the Membership Interest
Purchase Agreement between Flags of Valor and FOV Holdings (executed by Lucas on behalf of
FOV Holdings) dated November 10, 2022, the purchase price for this 45% ownership interest in
Flags of Valor was $1.35 million.
155.
The FOV Holdings Operating Agreement stated that one or more affiliates of
FOV Manager “may receive compensation” from Flags of Valor for services provided. In the
FOV Holdings Subscription Agreement, Lucas stated that FOV Holdings intended to use the
proceeds of the security offering to acquire an equity interest in Flags of Valor and “to pay
associated expenses including a $170,000 advisory fee to the Lucas Group, Lucas’s consulting
company.” The offering materials did not state that forty percent of investor funds would go to
Lucas and his entities.
156.
Lucas freely transferred FOV Holdings funds to the accounts of other entities he
controlled and vice-versa, seemingly depending on which entity had funds and which entity had
bills or obligations to meet. From 2022 through 2024, Lucas made net transfers from the FOV
Holdings account of $800,000 to XL7’s account, $164,800 to Fund 2’s account, $324,000 to
LBE’s account, and $235,000 to Immunocologie’s account.
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157.
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Lucas also made direct payments from the FOV Holdings bank account for his
own personal benefit. In this manner, he used FOV Holdings investor money to pay
approximately $150,000 for expenses related to the newspaper he owned, approximately
$116,000 in rent payments for his personal residence, approximately $100,000 to a political
consultant, and approximately $15,000 in alimony payments. He also charged approximately
$74,000 in airfare, hotels, restaurants, groceries, rideshares, and other personal expenses directly
to the FOV Holdings bank account.
158.
Having reviewed and approved the offering documents investors received,
including the slide deck for investors, the Membership Interest Purchase Agreement between
Flags of Valor and FOV Holdings, and the FOV Holdings Operating Agreement, and in his
capacity as Managing Member of FOV Manager with control over the financial accounts of FOV
Manager and FOV Holdings, Lucas knew, was reckless in not knowing, or at a minimum, should
have known, that the 40% of investor funds in FOV Holdings that Defendants transferred to
Lucas and his entities were in excess of the compensation set forth in the FOV Holdings
Operating Agreement and the FOV Holdings Subscription Agreement, and therefore were in
contravention of those documents.
FIRST CLAIM FOR RELIEF
(Fraud in Violation of Section 10(b) of the Exchange Act and Rule 10b-5 Thereunder)
(All Defendants)
159.
The Commission realleges and incorporates by reference each and every
allegation contained in Paragraphs 1 through 129 and 152 through 158 of this Complaint as
though fully set forth herein.
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160.
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By engaging in the conduct described above, Defendants, directly or indirectly, in
connection with the purchase or sale of securities, by the use of the means or instrumentalities of
interstate commerce, or of the mails, have, knowingly or recklessly (a) employed devices,
schemes, or artifices to defraud, (b) made untrue statements of material facts or omitted to state
material facts necessary in order to make the statements made, in the light of the circumstances
under which they were made, not misleading, and/or (c) engaged in acts, practices, or courses of
business which operate or would operate as a fraud or deceit upon any person.
161.
By reason of the foregoing, Defendants have violated and, unless enjoined, are
reasonably likely to continue to violate Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)]
and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5].
SECOND CLAIM FOR RELIEF
(Fraud in Violation of Section 17(a) of the Securities Act)
(All Defendants)
162.
The Commission realleges and incorporates by reference each and every
allegation contained in Paragraphs 1 through 129 and 152 through 158 of this Complaint as
though fully set forth herein.
163.
By engaging in the conduct described above, Defendants, directly or indirectly, in
the offer or sale of securities, by the use of the means or instruments of transportation or
communication in interstate commerce or by use of the mails: (a) knowingly or recklessly
employed devices, schemes, or artifices to defraud; (b) knowingly, recklessly or negligently
obtained money or property by means of untrue statements of material facts or omissions of
material facts necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading; and/or (c) knowingly, recklessly or negligently
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engaged in transactions, practices, or courses of business which operated or would operate as a
fraud or deceit upon the purchaser.
164.
By reason of the foregoing, Defendants have violated and, unless enjoined, are
reasonably likely to continue to violate, Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)].
THIRD CLAIM FOR RELIEF
(Control Person Liability Under Section 20(a) of the Exchange Act)
(Defendant Lucas)
165.
The Commission realleges and incorporates by reference each and every
allegation contained in Paragraphs 1 through 129 of this Complaint as though fully set forth
herein.
166.
By engaging in the conduct described above, Defendant Lucas directly or
indirectly controlled Defendant LBE and at no point in time acted in good faith.
167.
As alleged above, Defendant LBE violated Section 10(b) of the Exchange Act [15
U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5].
168.
By reason of the foregoing, Defendant Lucas is liable as a controlling person for
the securities violations committed by Defendant LBE to the same extend as that entity is liable
pursuant to Section 20(a) of the Exchange Act [15 U.S.C. § 78t(a)].
FOURTH CLAIM FOR RELIEF
(Fraud in Violation of Sections 206(1) of the Advisers Act)
(All Defendants)
169.
The Commission realleges and incorporates by reference each and every
allegation contained in Paragraphs 1 through 129 of this Complaint as though fully set forth
herein.
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170.
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At all relevant times, Defendants were investment advisers to the Funds under
Section 202(a)(11) of the Advisers Act [15 U.S.C. § 80b-2(a)(11)] because they were persons
who, for compensation, engaged in the business of advising others, either directly or through
publications or writings, as to the value of securities or as to the advisability of investing in,
purchasing, or selling securities. Defendants owed the Funds a fiduciary duty of utmost good
faith and had an affirmative duty to make full and fair disclosure to them of all material facts, as
well as the duty to act in the Funds’ best interests, and not to act in their own interests to the
detriment of the Funds.
171.
By engaging in the conduct described above, Defendants, directly or indirectly, by
use of the mails or any means or instrumentalities of interstate commerce, while acting as
investment advisers, have knowingly or recklessly employed one or more devices, schemes, or
artifices to defraud any client or prospective client.
172.
By reason of the foregoing, Defendants have violated, and unless enjoined are
reasonably likely to continue to violate, Sections 206(1) of the Advisers Act [15 U.S.C. §§ 80b6(1)].
FIFTH CLAIM FOR RELIEF
(Fraud in Violation of Sections 206(2) of the Advisers Act)
(All Defendants)
173.
The Commission realleges and incorporates by reference each and every
allegation contained in Paragraphs 1 through 151 of this Complaint as though fully set forth
herein.
174.
At all relevant times, Defendants were investment advisers to the Funds under
Section 202(a)(11) of the Advisers Act [15 U.S.C. § 80b-2(a)(11)] because they were persons
who, for compensation, engaged in the business of advising others, either directly or through
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publications or writings, as to the value of securities or as to the advisability of investing in,
purchasing, or selling securities. Defendants owed the Funds a fiduciary duty of utmost good
faith and had an affirmative duty to make full and fair disclosure to them of all material facts, as
well as the duty to act in the Funds’ best interests, and not to act in their own interests to the
detriment of the Funds.
175.
By engaging in the conduct described above, Defendants, directly or indirectly, by
use of the mails or any means or instrumentalities of interstate commerce, while acting as
investment advisers, have knowingly, recklessly, or negligently engaged in transactions,
practices, or courses of business which operated as a fraud or deceit upon any client or
prospective client.
176.
By reason of the foregoing, Defendants have violated, and unless enjoined are
reasonably likely to continue to violate, Sections 206(2) of the Advisers Act [15 U.S.C. §§ 80b6(1) and 80b-6(2)].
SIXTH CLAIM FOR RELIEF
(Fraud in Violation of Section 206(4) of the Advisers Act and Rule 206(4)-8 Thereunder)
(All Defendants)
177.
The Commission realleges and incorporates by reference each and every
allegation contained in Paragraphs 1 through 129 of this Complaint as though fully set forth
herein.
178.
At all relevant times, Defendants were investment advisers, under Section
202(a)(11) of the Advisers Act [15 U.S.C. § 80b-2(a)(11)] to the Funds, pooled investment
vehicles as defined in Rule 206(4)-8(b) of the Advisers Act [17 C.F.R. § 275.206(4)-8(b)].
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179.
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By engaging in the conduct described above, Defendants, directly or indirectly,
while acting as investment advisers to the Funds, through the use of the mails or any means or
instrumentalities of interstate commerce, knowingly, recklessly, or negligently: (1) made untrue
statements of material fact and omitted to state material facts necessary to make statements
made, in the light of the circumstances under which they were made, not misleading, to investors
and prospective investors in the pooled investment vehicles; and/or (2) engaged in acts,
practices, and courses of business that were fraudulent, deceptive, and manipulative with respect
to investors and prospective investors in pooled investment vehicles.
180.
By reason of the foregoing, Defendants have violated, and unless enjoined are
reasonably likely to continue to violate, Section 206(4) of the Advisers Act [15 U.S.C. § 80b6(4)] and Rule 206(4)-8 thereunder [17 C.F.R. § 275.206(4)-8].
PRAYER FOR RELIEF
WHEREFORE, the Commission respectfully requests that the Court enter a Final
Judgment:
I.
Finding that Defendants each violated the Federal securities laws and rules promulgated
thereunder as alleged against them in this Complaint.
II.
Permanently restraining and enjoining Defendants, their agents, servants, employees, and
attorneys, and other persons in active concert or participation with them who receive actual
notice of the injunction by personal service or otherwise from committing future violations of (i)
Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)]; (ii) Section 10(b) of the Exchange Act,
[15 U.S.C. §§ 78j(b)] and Rule 10b-5 thereunder [17 C.F.R.§ 240.10b-5]; and (iii) Sections
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206(1), (2), and (4) of the Advisers Act [15 U.S.C. §§ 80b-6(1), (2), and (4)] and Rule 206(4)-8
thereunder [17 C.F.R. § 275.206(4)-8].
III.
Permanently restraining and enjoining Defendant Lucas from directly or indirectly,
including, but not limited to, through any entity owned or controlled by him, participating in the
issuance, purchase, offer, or sale of any security, provided, however, that such injunction shall
not prevent him from purchasing or selling securities for his own personal account.
IV.
Permanently restraining and enjoying Defendant Lucas from, directly or indirectly, acting
as or being associated with any investment adviser.
V.
Ordering Defendants, jointly and severally, pursuant to Sections 21(d)(3), (d)(5), and
(d)(7) of the Exchange Act [15 U.S.C. §§ 78u(d)(3), (5), and (7)], to disgorge all ill-gotten gains,
with prejudgment interest, as a result of the conduct alleged in this Amended Complaint.
VI.
Ordering Defendants to pay civil monetary penalties pursuant to Section 20(d) of the
Securities Act [15 U.S.C. § 77t(d)], Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)], and
Section 209(e) of the Advisers Act [15 U.S.C. § 80b-9(e)];
VII.
Retaining jurisdiction of this action in accordance with the principles of equity and the
Federal Rules of Civil Procedure in order to implement and carry out the terms of all orders and
decrees that may be entered, or to entertain any suitable application or motion for additional
relief within the jurisdiction of this Court; and
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VIII.
Granting such other and further relief this Court may deem just, proper, and equitable.
DEMAND FOR A JURY TRIAL
The Commission demands a trial by jury in this action.
Dated: April 24, 2026
Respectfully submitted,
/s/ Anna O. Area
Anna O. Area
Application for Admission pro hac vice pending
Senior Trial Counsel
SECURITIES AND EXCHANGE
COMMISSION
100 F. Street NE
Washington, DC 20549
Telephone: (202) 551-6417
Email: aarea@sec.gov
Attorney for Plaintiff
Of Counsel
David T. Frisof
Ann L. Rosenfield
Brian Vann
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