According to the SEC's complaint, Function(x) incurred significant losses during the first quarter of 2017 and completed a public securities offering that brought in $4.8 million from investors in order to raise capital and fund operations. The complaint alleges that Sillerman then fraudulently diverted $500,000 of the offering proceeds to repay loans he made to the company where he held the title of CEO.
Sillerman was also accused of misleading individuals to invest in Function(x) by falsely claiming two unnamed celebrities had agreed to invest in the company. In order to con investors into believing the celebrities were involved with Function(x), Sillerman allegedly created phony subscription documents with forged signatures from the two celebrities.
The SEC’s complaint claims Function(x) publicly announced that the offering had raised $10 million, which would be used for working capital and corporate expansion. It continues that the company only raised half of that amount and that Sillerman diverted all of the proceeds to his personal bank accounts to repay loans.
Sillerman has agreed to settle the SEC's charges without admitting or denying the allegations in the complaint. He has agreed to pay the civil penalty pursuant to the Chapter 11 plan approved in his personal bankruptcy case.
Sillerman filed for Chapter 11 bankruptcy in February of 2018 after Chicago-based EDM promoter React Presents and its ticketing platform, ClubTix, won a judgement against the beleaguered businessman over a $10 million unpaid promissory note he guaranteed for the purchase of React Presents.