2021
On November 3, 2021, Securities Commissioner Travis J. Iles entered an emergency cease and desist order against Paganelli Enterprises, LLC, Christopher Dino Paganelli and AP Hedge. According to the order, the parties are located in Las Vegas but have been fraudulently soliciting Texas residents to invest in an illegal gambling scheme.
Paganelli Enterprises, Paganelli and AP Hedge are accused of advertising the gambling scheme in a craigslist forum that targets Texans. According to the order, they are also broadly advertising the gambling scheme through other public means, such as an online platform accessible at aphedge.com, an Instagram account, and videos published in a YouTube channel.
Their pitch plays on fear and frustration. They allegedly claim investors are fed up with earning passive income through traditional investments, such as stocks and bonds and other basic investment products. They also allegedly claim basic investment products do not perform fast enough, rarely pay up, and are not worth the hassle, headache and stress required to invest with traditional firms.
The parties are offering a simple, lucrative solution – they are allegedly offering an alternative investment that permits anyone to invest $10,000 in a gambling program that purportedly provides an average return of $1,000 per day or $30,000 per month.
The scheme is simple. Investors send money to AP Hedge through Venmo or Cash App, and AP Hedge then purportedly provides the principal to a verified “advanced player” or “AP.” APs exploit innate characteristics of a particular game to give the AP an advantage relative to the house and other players. The AP uses the principal, as well as this advantage, to gamble and earn profits. The profits are then evenly split between the investor and the AP.
The order found the scheme is illegal, deceptive, and fraudulent.
According to the order, the parties are concealing key information – including the identity and role of Paganelli Enterprises and Paganelli. They are also accused of concealing the location of AP Hedge, its methodology for selecting and verifying APs and any means of actually accounting for any profits earned through gambling.
It’s all part of the plan? According to the order, Paganelli Enterprises, Paganelli and AP Hedge are justifying the concealment of key information. They are allegedly explaining they are not providing key information to investors “for practical reasons relating to [the] risk of Casino(s) Banning APs,” and representing that “[d]ue to the risks of being banned from casinos, identities are protected.”
Moreover, Paganelli Enterprises, Paganelli and AP Hedge are not registered to offer securities in Texas, and the gambling investments have not been registered or permitted for sale in Texas.
Nevertheless, the parties allegedly claim to be “100% Legal” because they are purportedly raising capital pursuant to a “Private Placement Exemption.” They are even touting their legitimacy by providing potential investors with a law review article published in the University of Nevada Las Vegas Gaming Law Journal that discusses regulation of gambling investments as securities.
The order found the claims of legality to be false and their statements to be deceptive. Federal Securities and Exchange Commission Regulation D, Rule 506, is often referred to as the private placement exemption from federal and state securities registration requirements. Paganelli Enterprises, Paganelli and AP Hedge do not qualify for safe harbor pursuant to Regulation D, Rule 506, because they are using public solicitation, are not limiting sales to accredited investors and are not taking reasonable steps to ensure that all investors are accredited investors. In other words, this scheme is simply not the type of securities offering that is entitled to bypass critical laws designed to protect the investing public.
Paganelli Enterprises, Paganelli and AP Hedge have 30 days to challenge the order.
Contact – Joe Rotunda, TSSB Enforcement Director, at jrotunda@ssb.texas.gov or 512-305-8392.